Airline Stocks

Airline stocks are susceptible to various exogenous factors (unfavorable economic and political environment and natural calamities, among others), and the past couple of years have been particularly challenging for the industry.

The air travel industry was hit hard by the COVID-19 pandemic, which sapped demand and grounded flights. However, as things started to look better with the easing of government-imposed travel restrictions and widespread vaccinations, Russia invaded Ukraine.

What followed was a series of sanctions from the West to squeeze the Russian economy and President Biden banning Russian oil imports, all leading to a surge in oil and gas prices amid supply concerns.

The higher oil prices will hurt the airline industry. Notably, air travel will not be cheap amid higher fuel prices, which could impact demand and push the recovery timeline.

For context, the IATA’s (International Air Transport Association) jet fuel price monitor, based on the data from Platts, shows that jet fuel prices in North America have increased by 31.4% per barrel in a week. Meanwhile, it increased by 32.8% in Europe & the CIS (commonwealth of independent states) and 14.6% in Asia & Oceania.

The panic around oil led to selling in top airline stocks. Let’s look at two airline stocks that have witnessed significant selling this month.

United Airlines

This month, United Airlines (NASDAQ:UAL) stock has lost more than 27% of its value due to the Russia/Ukraine crisis. It’s worth noting that United Airlines started 2022 with a scaled-back schedule due to the spread of the Omicron variant of the coronavirus. Meanwhile, citing delays due to the newer variant of the virus, United Airlines announced that planned capacity for 2022 would be lower than 2019 levels.

Now, with higher jet fuel prices, air travel demand could remain subdued in the near term and, in turn, impact the financials of the company. UAL stock sports a Hold rating on TipRanks based on 5 Buy, 5 Hold, and 3 Sell recommendations.

Meanwhile, due to the recent pullback, the average United Airlines price target of $54.46 implies 69% upside potential to current levels. However, UAL stock scores a 1 out of 10 from TipRanks’ Smart Score rating system, implying it will likely underperform the market averages.

Delta Airlines

Shares of Delta Airlines (NYSE:DAL) have dropped about 22% this month. Though the company benefitted from the uptick in demand trends, it acknowledged that the rise in COVID cases would likely stall the recovery.

Now, with higher jet fuel costs, the pace of demand recovery could delay further, impacting its short-term financial performance. It’s worth noting that Delta Airlines stock has a Strong Buy consensus rating on TipRanks based on 13 Buy and 4 Hold recommendations. Meanwhile, the average Delta Airlines price target of $50.53 implies 61.9% upside potential to current levels.

However, hedge funds have been selling DAL stock. Per TipRanks’ Hedge Fund Trading Activity tool, hedge funds have offloaded 1.9M DAL shares in the last quarter.