2nd Sep 2021
The Covid pandemic isolated us in our homes for over a year. As countries struggled to control its spread, borders were closed, flights cancelled, trips postponed indefinitely. The pre-covid travel and tourism industry contributed $8.9 trillion to world GDP,1 and it has cost the sector an estimated $3.3 trillion.2 In 2020, industry revenues totaled $328 billion, around 40 per cent of the previous years.3
But as vaccines are rolled out and restrictions are lifted, there is evidence of recovery among airline stocks. In June the US Transport Security Administration (TSA) recorded over 2 million travelers, for the first time since March 2020. While this is only 74% of the volume compared with the same day in 2019, its still 1.5 million more travelers than the same day last year.4
Airlines are positioning themselves to be ready for an increase in demand as restrictions end. So while its still not clear which airline stocks to buy, it’s worth keeping an eye on this sector.
In the US, Delta Air Lines, for example, said it expects to hire between 4,000 and 5,000 new employees this year. American Airlines plans to employ 1,350 new pilots through next year (450 more than expected) and Southwest Airlines said employees on voluntary leave would be recalled by the end of the year.5 “We don’t just see the light at the end of the tunnel, we’re exiting the tunnel,” said United Airlines Chief Executive Scott Kirby.6
Elsewhere flights within Asia picked up mainly due to growing domestic air travel in China after restrictions we largely lifted. And in Europe France and Germany’s accelerated vaccination campaigns helped strengthen travel.7
With all this in mind, how might an investor looking for exposure to airline stock growth, approach the question of the best airline stocks to buy? Below are some ideas.
1. CRUZ Travel ETF – The Travel Reopening Trade (CRUZ)
Defiance’s CRUZ launched in June 2021 and is an ETF rather than a single equity stock. This means that you can buy and sell it like a stock, but its net asset value is linked to the value of its composite stocks, which in this case seeks to track an index of global companies that derive at least 50% of their revenue from passenger airline, hotel and cruise industries. While it’s not a pure airline ETF, it includes 17 airline stocks as of 7/28/2021 and is positioned to capture potential growth in a travel and tourism industry that contributed $8.9 trillion to world GDP pre-covid. 8
As an ETF, CRUZ provides access to a range of stocks, including not a few airline companies, which promotes an investment strategy that seeks exposure to this sector while mitigating the concentration risk of buying one individual stock.
2. Southwest Airlines (LUV)
Southwest’s stock hit a low in July 2020. In April 2021 it had risen sharply to over double the July 2020 level, and has since tailed off slightly in response to announcements about the Delta variant of Covid 19. But as of July 25, 2021 its 52 week stock price record was still up over 60%. 9
Southwest made a recent announcement that it will increase its minimum wage to $15 an hour and raise the pay of thousands of airport workers. This reflects its confidence and the need for sufficient staff to support growth over the coming two to four years.
3. Ryanair (RYAAY)
Irish airline company, and Europe’s largest low-cost carrier, RYAAY is up 43% over the last year.10 Though its 2021 first quarter results still showed a loss, the loss was less than expected.11 Ryanair announced that it expected to fly between 90 and 100 million passengers in its financial year to end-March 2022, up from an earlier forecast of 80-100 million.
Its pre-COVID-19 peak was 149 million passengers in 2019, which it aims to return to. Despite all the uncertainty in the sector, Ryanair maintains cash reserves of 4.06 billion euros, up from 3.15 billion at the end of March following a 1.2 billion euro bond sale in May.
4. United Airlines (UAL)
Despite reporting continued loses, shares of United Airlines rose close to 4% on July 21 after it forecast that the rebound in travel demand will continue in the coming months. UAL is up over 46% over the last year12 and UAL CEO Scott Kirby said recently that the carrier isn’t seeing an impact on bookings from the delta variant.13
UAL is lobbying the US government to lift the ban on non-US citizens arriving from the UK and European Union, which has been in place since March 2020. It argues that the ban cant stop the Delta variant that is already prevalent in the country, and that families divided since last year need to be reunited. There is no indication of a change in government policy as yet, but that did not stop UAL’s revenue quadrupling compared to a year ago and topping estimates with a strong domestic travel rebound.14
5. Delta Airlines (DAL)
Rated no. 1 for the third year in a row by “The Points Guy” best airlines report15, DAL is up over 58% over the last year.16 Delta is the U.S.’s largest airline carrier, with enough confidence in the reopening of air travel to announce its deal to add 29 used Boeing 737-900ERs and lease seven used Airbus A350-900s as it continues to streamline and modernize its fleet.17
Indeed Delta even recorded profits in 2021, due to its share of a $54 billion in federal pandemic relief for the airline industry.18
6. Singapore Airlines (SINGF)
The covid crisis was perhaps most threatening to carriers lacking a strong domestic market. The U.S. airlines all note that domestic travel has recovered first, and international travel will take longer.
Singapore Airlines’ crucial $16 bn investment package from the government-owned investment arm Temasek Holding, has therefore been central to its survival and has even positioned it for growth. It has given the company the security of knowing that it can hang on at least two more years without cuts, and is modernizing its fleet to save fuel, reduce maintenance costs and meet environmental goals while other airlines shed aircraft. 19
SINGF is up over 36% over the last year20, as investors also see the potential in its budget arm, Scoot, which is primed to respond quickly to increased demand anticipated as restrictions ease.
1 “The Covid-19 Pandemic Has Cost The Global Tourism Industry $935 Billion,” Duncan Madden, January 14, 2021. https://www.forbes.com/sites/duncanmadden/2021/01/14/the-covid-19-pandemic-has-cost-the-global-tourism-industry-935-billion/?sh=7852ded17d40
2 “The Future of Travel in the Covid-19 Era,” Nikki Ekstein, April 26 2021. https://www.bloomberg.com/news/storythreads/2020-05-08/the-future-of-travel-in-the-covid-era
3 “Airline sector poised for change post-COVID-19 pandemic,” Joe Cusmano, Jun 25, 2021. https://www.traveldailymedia.com/airline-sector-poised-for-change-post-covid-19-pandemic/
4 “US airline industry rebounds as 2m travel for first time since March 2020,” June 12, 2021. https://www.theguardian.com/business/2021/jun/12/us-airline-industry-2m-travel-pandemic-recovery
5 “Airlines not feeling effect of rising virus cases amid scramble to recruit, retrain workers,” July 22, 2021. https://www.washingtonpost.com/transportation/2021/07/22/airlines-hiring-covid-travel/
6 “Airlines not feeling effect of rising virus cases amid scramble to recruit, retrain workers,” July 22, 2021. https://www.washingtonpost.com/transportation/2021/07/22/airlines-hiring-covid-travel/
7 “Air Travel Forecast: When Will Airlines Recover from Covid-19?” June 10, 2021. https://www.bain.com/insights/air-travel-forecast-when-will-airlines-recover-from-covid-19-interactive/
8 “The Covid-19 Pandemic Has Cost The Global Tourism Industry $935 Billion,” Duncan Madden, January 14, 2021. https://www.forbes.com/sites/duncanmadden/2021/01/14/the-covid-19-pandemic-has-cost-the-global-tourism-industry-935-billion/?sh=7852ded17d40
9 https://finance.yahoo.com/quote/LUV/key-statistics?p=LUV Data derived from multiple sources or calculated by Yahoo Finance. As of July 25, 2021.
10 https://finance.yahoo.com/quote/RYAAY/key-statistics?p=RYAAY. Data derived from multiple sources or calculated by Yahoo Finance. As of July 26, 2021.
11 “Ryanair nudges up annual traffic forecast, first-quarter loss smaller than expected,” Reuters, July 26, 2021. https://www.msn.com/en-us/money/companies/ryanair-nudges-up-annual-traffic-forecast-first-quarter-loss-smaller-than-expected/ar-AAMyvlH
12 https://finance.yahoo.com/quote/UAL/key-statistics?p=UAL . Data derived from multiple sources or calculated by Yahoo Finance. As of July 26, 2021.
14 “UPDATE 1-United Airlines revenue tops estimates as travel rebounds, sees 3rd-quarter turning point,” Tracy Rucinski, July 21, 2021 https://finance.yahoo.com/news/1-united-airlines-revenue-tops-212120679.html
15 “Delta Air Lines keeps top spot in The Points Guy’s best airlines report,” Mon, July 19, 2021 https://finance.yahoo.com/video/delta-air-lines-keeps-top-165625830.html?fr=sycsrp_catchall
16 https://finance.yahoo.com/quote/DAL/key-statistics?p=DAL. Data derived from multiple sources or calculated by Yahoo Finance. As of July 26, 2021.
17 “Delta to add Airbus, Boeing aircraft to fleet amid travel demand recovery,” Jul 13, 2021. https://news.delta.com/delta-add-airbus-boeing-aircraft-fleet-amid-travel-demand-recovery
18 “US airlines say spread of COVID delta variant isn’t deterring travelers from booking flights,” David Koenig, Associated Press, July 22, 2021 https://www.usatoday.com/story/travel/airline-news/2021/07/21/covid-delta-variant-travel-flight-bookings-up-united-airlines-delta/8047954002/
19 “Singapore Airlines in position of strength as rivals pull back: Analysts,” July 18, 2021. https://www.channelnewsasia.com/news/business/singapore-airlines-aims-for-regional-dominance-15179118
20 https://finance.yahoo.com/quote/SINGF/key-statistics?p=SINGF. Data derived from multiple sources or calculated by Yahoo Finance. As of July 25, 2021.