Airline Stocks Crashed in 2022, Optimistic for 2023

Although U.S. airline stocks are upbeat about 2023, their enthusiasm comes after a year when no major airline’s stock rose.

Rather, Spirit’s stock price was the best performing in 2022. They fell by 13%.

Meanwhile, shares of merger partner JetBlue plunged 56%, the most in the sector.

JetBlue spent the months of April to July bargaining up the price it would pay for Spirit in order to break up a deal with Frontier: its stock dropped 44% during that time. It emerged wounded and blue with a $3.8 billion commitment, primarily for access to Spirit’s pilots, planes, and geographical reach.

JetBlue may have to pay too much, but it will no longer be an airline that can be effectively shut down by poor weather at two Northeast airports.

Competitors have provided good outlooks for 2023, but all have seen stock market falls in 2022 when the S&P 500 index plunged 19.4%, its lowest year since 2008. United dropped 17%, Delta dropped 18%, Alaska dropped 21%, Southwest dropped 23%, Frontier dropped 27%, American dropped 32%, and Hawaiian dropped 47%.

The year was marked by a patchy recovery from the pandemic. Demand increased in March, with Bank of America analyst Andrew Didora writing in research on March 14 that “leisure demand is insatiable.

Ironically, the year-long rise in demand created a slew of unexpected issues for a sector that had spent the previous two years reducing, leaving it with a scarcity of pilots, planes, airport staff, and air traffic controllers.

Summer storms have nearly halted airlines’ always-fragile networks several times. The year finished with Southwest, a long-time industry darling, crippled by winter storms that exposed faults in its old systems.

Nonetheless, leading carriers appear upbeat about 2023. Delta CEO Ed Bastian stated ahead of a mid-December investor day presentation, “Demand for air travel is healthy as we end the year, and Delta’s momentum is building.

He forecasted revenue growth of 15% to 20% in 2023, with a margin improvement that will quadruple earnings per share. Delta Airlines will announce fourth-quarter results on January 13, just ten days later.

Meanwhile, in early December, United Airlines CEO Scott Kirby told CNBC’s Squawk Box that, while corporate demand has “plateaued,”

United is benefiting from sustained robust demand and capacity restrictions. Despite popular recession apprehension, Kirby stated, “If I didn’t watch CNBC in the morning… the word recession would not be in my lexicon, just looking at our data.

Kirby’s remarks come a few days after Cowen analyst Helane Becker proclaimed, “We are remaining with United Airlines as our top pick for 2023,” Becker added in a note that United “had been a star performer in 2022, strongly exceeding the S&P 500 and NYSE ARCA Airline indexes YTD. The carrier’s network and affiliations position it to benefit from the international travel recovery. It has a substantial liquidity buffer, which should allow it to continue paying down debt while navigating any macroturbulence.

Airlines are better positioned for 2023 than investors anticipate,” Becker said at the time. Airline stocks are not far off pandemic lows, but revenues are higher than pre-pandemic levels and keeping up with costs.

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