Unfazed by Airline Grounding, Investors Look Ahead to Earnings

A little over two weeks after a winter storm triggered thousands of flight delays and cancellations, domestic airlines were once again forced to pause operations temporarily on Wednesday. A Federal Aviation Administration (FAA) review has linked the outage, which grounded every carrier in the U.S. for the first time since 9/11, to IT personnel “who failed to follow procedures.”

Investors don’t appear to have been fazed. Shares of U.S. domestic airlines finished Wednesday up more than 1% before advancing a further 4% on Thursday in response to positive earnings estimates. Airline and travel names were the best performers in the S&P 500 on Thursday, with American Airlines jumping 9.7%, United Airlines 7.5% and Expedia Group 3.8%.

For the one-month, three-month and six-month periods, a basket of global airline stocks has crushed the market. Since the middle of October, the NYSE Arca Global Airline Index has soared over 22% compared to the S&P 500, which has gained 11%.

Shares of Global Airlines Crushing the Market

Much of the recent increase has been driven by China’s decision to lift quarantining requirements for incoming travelers for the first time since the start of the pandemic. Airline bookings in China have exploded as a result.

But regional air travel demand was expanding even before China’s announcement. This week, the Association of Asia Pacific Airlines (AAPA) reported that 13.4 million international passengers were carried by Asian airlines in November 2022, a phenomenal 663% increase from the same month a year earlier. Based on revenue passenger kilometers (RPKs), demand rose nearly 500% in the 12-month period through the end of November.

There are other drivers to the stock rally, though.