Why Did Airline Stocks Enter A Tailspin Last Week?

Despite our recent reemergence following COVID and a slackening of the strict testing requirements for flying, airline companies have yet to soar to the heights that many of us anticipated.

Let’s take a birdseye view of the industry and see if we can understand why aviation remains grounded.

Are airline stocks flying into trouble?

Last week was a dour week for the market in general, but airlines, in particular, felt the full brunt of wavering consumer confidence. American Airlines (NASDAQ: AAL) dropped by over 8% on Thursday, with Delta Airlines (NYSE: DAL) shedding over 7% of its value. In fact, the NYSE Arca Airline Index — an index tracking 18 of the most highly capitalized airlines in the U.S. and beyond — dropped by over 7% on Thursday.

If we zoom out and look beyond last week, it makes for similarly frightful reading. Respective monthly drops of 20% and 21% have been experienced by American Airlines and Delta, while the aforementioned Airline Index is down close to 18%. 

So what’s going on? Planes are often full and ticket prices have been soaring. Surely this is a positive sign for these companies? 

Well, as is often the case on Wall Street, investors are focusing on the future as opposed to the present. Recent interest hikes, including the biggest increase since 1994 last week, will likely curtail extraneous consumer spending.

While a summer travel boom is largely occurring right now, that seasonal boost won’t last and the depression afterward could be worsened by the threat of an impending recession. People have been unable to travel for so long that this surge in flights was bound to happen, and likely priced in.

While these companies certainly proved their respective fortitude by not crumpling during the pandemic, now they face a new test that could well last even longer. For those who believe in them, a long-term outlook is essential as, with anything related to flying, turbulence is to be expected.