• July 14, 2023
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US Airline Stock Valuations Stuck On Runway Despite Travel Boom In 2023

US airline stock valuations stuck on runway despite travel boom in 2023 Airlines are facing higher costs due to rising…

US airline stock valuations stuck on runway despite travel boom in 2023

Airlines are facing higher costs due to rising fuel prices, labor shortages, and supply chain disruptions. US reached 90% of pre-pandemic levels in June 2023.

The US airline industry has seen a remarkable recovery in passenger demand since the pandemic-induced slump of 2020 and 2021. According to the latest data from the Bureau of Transportation Statistics, domestic air travel in the US reached 90% of pre-pandemic levels in June 2023, while international travel was at 75%. This is largely due to the widespread vaccination efforts, the easing of travel restrictions, and the pent-up demand for leisure and business trips.

US airline stock valuations stuck on runway despite travel boom in 2023

However, this rebound in traffic has not translated into a corresponding increase in stock prices for the major US airlines. As of July 14, 2023, the NYSE Arca Airline Index, which tracks the performance of 15 US airline stocks, was still down by 25% from its peak in January 2020. The index has also underperformed the broader S&P 500 index, which has gained 40% over the same period.

Why are US airline stocks lagging behind the market despite the travel boom?

There are several factors that may explain this disconnect. First, airlines are facing higher costs due to rising fuel prices, labor shortages, and supply chain disruptions. These factors have eroded their profit margins and forced some carriers to cut capacity or raise fares. Second, airlines are still carrying a heavy debt load from the billions of dollars they borrowed during the crisis to stay afloat. This debt burden limits their ability to invest in new aircraft, technology, or customer service. Third, airlines are facing increased competition from low-cost carriers, such as Southwest and JetBlue, which have expanded their market share and network during the pandemic. These carriers offer lower fares and more flexibility to travelers, putting pressure on the legacy airlines to match them or lose customers.

In summary, US airline stocks are stuck on the runway despite the travel boom because of the challenges they face in restoring their profitability, reducing their debt, and competing with low-cost rivals. Investors may be waiting for more evidence that airlines can overcome these hurdles and generate sustainable returns before they reward them with higher valuations.

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