Chris Wang chats with Nicole Petallides, host of the Trading 360 and the Watch List, about the airline industry ahead of the big Thanksgiving travel surge.

Airline sector

  • Airlines are typically poor performers in bear markets; however, they have outperformed so far in 2022
  • Leisure travel has been extremely resilient but is weakening especially in Europe
  • Frontier (ticker: ULCC) is in an interesting name in the group with a focus on low price and is expected to grow their fleet in the coming years
  • Thanksgiving travel is expected to be strong this year
  • Airlines are still rebounding off the pandemic lows


This time is different for airlines

This isn’t the backdrop where you would expect airlines to outperform with high oil prices, the Ukraine-Russia war, and slowing global economy, but leisure travel has been extremely resilient as consumers prioritize travel over other discretionary items. Some people are so called “revenge traveling,” meaning they want to travel more after being pent up for so long due to the pandemic. Some are more motivated by spending time with family members they haven't seen in quite some time.

Airlines have outperformed the S&P 500 slightly YTD with the Jets ETF -14% vs S&P -17%. Two standouts are United airlines (flat) and Frontier (-2% YTD); but they have massively underperformed since 2019: S&P +23%, JETS -42%, UAL -50%; DAL -42%.

Airlines are still coming off the cyclical lows of the pandemic lockdown. For example, prepandemic United earned over $11/share; this year they are expected to earn $1.8 (+113%) this year and $6.3 (+252%) next year.

Thanksgiving travel

Experts estimate 54.6 million people will travel 50 miles or more this Thanksgiving. It's expected to be the third busiest Thanksgiving travel season since AAA started tracking it in 2000.

Some 4.5 million people are expected to fly nationwide during the holiday, an 8% increase over last year.

Frontier (ticker ULCC)

Frontier is an interesting stock out of the group. The airline aims to provide the lowest absolute cost air travel in the US market as a true “ultra low cost carrier.”

While air travel demand could face challenges in a softer economy, we see Frontier’s low cost strategy at least partially insulating the company from potentially low market pricing outcomes.

Frontier maintains a sizable orderbook with Airbus that should support a robust growth outlook in the years ahead and should translate into double digit capacity expansion for the next several years.

We prefer US centric airlines as Europe is likely going into a deeper recession than the US.

Are you bullish or bearish on airline/travel stocks?