The airline industry is rebounding from pandemic-driven losses last year, with solid progress on the vaccination front and easing travel restrictions. However, elevated oil prices are a major headwind against the industry’s revival. Nevertheless, irrespective of high oil prices, we think fundamentally sound airlines stocks Southwest Airlines (NYSE:LUV), Delta Air Lines (NYSE:DAL), United Airlines (UAL), and American Airlines (NASDAQ:AAL) could be solid bets now. Read on.The airline industry was among the worst-hit industries during the COVID-19 pandemic, with lockdowns and travel restrictions imposed last year. However, the International Air Transport Association (IATA) expects the worst part of COVID-19’s effects on the airlines to be over and that total industry losses to fall considerably in 2022. Furthermore, IATA expects passenger numbers to increase to 3.4 billion in the coming year, almost hitting 2014 levels.
However, the key barrier to the industry’s recovery is the rallying oil prices, as fuel prices negatively correlate with the profitability of airline operators. Oil prices hit multi-year highs on October 25, with U.S West Texas Intermediate (WTI) crude futures reaching their highest level since October 2014, while Brent hit its three-year high. Fuel costs constitute 19% of total expenditure for airlines worldwide in 2021.
Though oil prices remain elevated, we think Southwest Airlines Co. (LUV), Delta Air Lines, Inc. (DAL), United Airlines Holdings, Inc. (NASDAQ:UAL), and American Airlines Group Inc. (AAL) could deliver solid returns considering their fundamental strength and the expected increase in travel ahead of the holiday season.