Key points:
- US airline companies rallied higher amid a surge in demand.
- As a result, the airlines were confident that Q1 results would beat estimates.
- The higher demand is expected to persist up to the summer months.
All the major US airlines, including Delta Airlines (DAL), United Airlines (UAL) and American Airlines (AAL), were up today after revealing that demand for airline travel was at an all-time high since the pandemic started.
The three airlines confirmed that demand for airline tickets was at an all-time high since the pandemic struck in arch 2020, leading to mass lockdowns across most countries.
Also read: The Best Travel Stocks to Buy Right Now.
The airlines had anticipated high demand during the summer months. Still, they were surprised to see the demand skyrocket in March, which will lead to higher revenues in the first quarter than they had initially predicted in January.
Many were surprised to hear that demand for travel to Europe had not slowed down despite Russia's invasion of Ukraine, which has led to the closure of large portions of airspace in response to the war.
The airline companies are counting on the higher demand to compensate for the cost of rising fuel prices as more flights travel at or near full capacity compared to the past when many flights were way below full capacity.
However, the airlines have warned that they have to raise ticket prices to compensate for the higher fuel costs.
Delta has said it will raise ticket prices by 10%, with United confirming that it will pass on the majority of the additional fuel costs to its customers.
Investors were happy to hear the CEOs of the airlines saying that they could still make a profit despite oil prices trading at $100 per barrel. Most CEOs are not worried about the higher oil prices despite fuel costs being a significant expense for airlines.
Delta airlines revised its Q1 passenger capacity estimates from the initial 72% to 76% of 209 capacity to 78%, citing the higher demand. United Airlines also confirmed that its revenues forecast for Q1 would be closer to the higher end of its 20% to 25% range.
US domestic operator Southwest Airlines confirmed that its Q1 revenues would be 8% to 10% lower than in Q1 2019 before the pandemic, which is a better figure than its initial 10% to 15% decline.
Therefore, investors in the airline sector have a reason to smile as the good times come rolling back for an industry that was highly battered by the COVID-19 pandemic and the resulting lockdowns.
Luckily for investors, oil prices have been falling recently as fears over a European ban on Russian oil imports fade away, given the region's over-reliance on Russia's oil and gas exports.
*This is not investment advice. Always do your due diligence before making investment decisions.
US airline stocks comparison chart
The chart above compares the stock price performance of Delta Airlines (Deep blue), United Airlines (orange) and American Airlines (light blue).
