Stocks rallied on Friday, and airline stocks went along for the ride. Shares of American Airlines Group (AAL 7.04%) led the march higher, up as much as 7.5% in midday trading, and shares of United Airlines Holdings (UAL 4.26%), Delta Air Lines (DAL 4.53%), Spirit Airlines (SAVE 3.85%), and JetBlue Airways (JBLU 5.01%) all gained as much as 5% apiece.
Wall Street ended a gloomy week with a ray of sunshine, with markets shooting higher on Friday after comments from Federal Reserve Chair Jerome Powell reaffirming the Fed’s proactive but not panicked approach to rising levels of inflation. Markets are hoping for a so-called “soft landing,” where the Fed is able to tame inflation without sending the economy into a recession.
For airline stocks, the talk of a slowdown couldn’t come at a worse time. The airlines were hit hard by the pandemic, and had hoped to use surging demand in 2022 to rebuild their balance sheets. Higher fuel and labor costs have already eaten into the recovery somewhat, but if inflation or an economic slowdown were to cause travelers to stay at home in the months to come that would at best push back the airline industry’s rebound.
United also gave the sector a spark by announcing it has a new contract deal with its pilot union. A wave of buyouts and early retirements in the early days of the pandemic has left most airlines short-staffed, and gives pilots a lot of leverage heading to the bargaining table. Investors will hope that United’s deal, which still needs to be ratified by membership, will pave the way for other carriers including Delta, American, and Southwest Airlines, which are currently in negotiations with their pilots unions.
Spirit and JetBlue are facing a different kind of face-off. On June 10, Spirit shareholders are scheduled to vote on the airline’s proposed acquisition by Frontier Group Holdings. JetBlue has submitted a rival bid for Spirit that Spirit’s board rejected due to antitrust concerns.
Friday’s push higher was a rare respite for airline investors, but even after the jump this group of stocks is still all in the red for the year. The airlines are making a gradual recovery, but with headwinds including labor and fuel costs coupled with an uncertain economic situation there is likely only so much altitude to be gained right now.
For long-term, patient investors, there is likely opportunity here, but given the risks ahead investors should remain cautious. Top fliers like Delta and Southwest, with track records of recent outperformance in good times and bad, appear better positioned to recover sooner than some of the other names in the sector.