Airline stocks finally back to pre-9/11 levels
Having dental surgery without Novocain can be a more pleasant experience than flying on a major U.S. airline these days, some would say.
There has been a litany of high-profile customer service mishaps on United, American and Delta in the past few months. Yet despite all the negative publicity, airline stocks are flying high.
Passengers may be getting forcibly removed from flights, but you can’t drag away investors from the group. Shares of American (AAL), Delta (DAL) and United (UAL) are each up about 6% this year while Southwest (LUV) has surged 20%.
In fact, the NYSE Arca Airline Index, which includes these four major carriers as well as some of the smaller regional ones, recently got back to levels that it last traded at nearly 16 years ago — just before the September 11 terrorist attacks.
It was a long climb back to prosperity for the group. Several airlines went bankrupt following 9/11. The Great Recession in 2008 didn’t help them obviously either.
But in the past year, airlines started to act more rationally with regards to pricing.
The days of insane fare wars, desperate ploys to fill seats that destroyed profit margins, are largely over. The big airlines now have fees for just about amenity imaginable as well — something that consumers hate but Wall Street loves.
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Consolidation has helped the industry too. Remember Northwest, US Airways, America West, Continental, Virgin America, AirTran? They’ve all been gobbled up in the past years.
With the weaker players weeded out, there are now only four major national airlines as well as some regional carriers and discount airlines, most notably Alaska Air (ALK) (which bought Virgin America), JetBlue (JBLU) and Spirit (SAVE).
And with fewer airlines flying, there hasn’t been as much of a need for the industry to offer as many aggressively low fares to get leisure and business travelers on board.
Analysts for the U.S. Global Jets (JETS) exchange-traded fund, which owns the major airlines and is up 12% in 2017, predict more smooth skies ahead. They noted in a report that strong consumer confidence is a plus and travel demand should remain strong.
So even though air travel on a commercial flight (especially in coach) may continue to be a frustrating endeavor, there’s little reason to expect that people will stop flying anytime soon.
