Today, the spotlight is on the stock of American Airlines, which has experienced an impressive 5.4% increase. This marks an incredible beginning to the year for the company, whose shares have soared from $12.72 to $16.20, reaching the highest point since June.
The airline industry is a good indicator of the overall economic climate, as it straddles several uncertain trends in 2021.
1) The movement of aircraft in the sky
This week, the International Air Transport Association (IATA) reported that the overall air traffic in November 2022 had increased by 41.3% since the same month a year ago; however, the level still remains at 75.3% of what it was prior to the pandemic.
American Airlines announced that their fourth quarter income for 2020 is projected to increase 16-17% compared to the same period in 2019, surpassing their expectations of an 11-13% rise. Although the growth is largely due to higher costs, it is indicative of an increase in demand.
Robert Isom, CEO of the company, mentioned to CNBC today that although they have only been in 2023 for a few weeks, their bookings have been encouraging.
2) Continuing with typical operations
The pandemic generated the idea that teleworking had taken over and that business trips and conventions were no more. However, this is not necessarily the case. The current situation is beginning to resemble the past, as business journeys are being re-initiated and employees are being recalled to the workplace.
3) Consumer Power
Leisurely air travel is considered a luxury that many consumers around the globe have put on the backburner. After much of the held-back demand from the pandemic has been fulfilled, the post-pandemic world is becoming more normalized, with the economy playing a large role in air travel. The remarks from American Airlines indicate a strong US consumer, for the time being. However, if there is a shift in comments from airlines, it is a great signal that the consumer has ceased to progress. Notably, Jet Blue was not very confident in bookings last month.
4) Requirement of oil
The estimations of oil demand for this year are quite complex due to economic concerns and conservation initiatives in Europe. Of all sectors, it is most complicated to predict the aviation industry, since if the demand returns to its 2019 levels, the market for crude oil would be insufficient. On Monday, Pierre Andurand cautioned that aviation could surprisingly lead to an increase in demand.
Analysts may be mistaken in their predictions of oil demand due to jet fuel, according to Rystad. Their real-time data shows that the global demand for jet fuel in the last 7-day period was up 1mbd from the prior year and 550kbd above the 2022 average. Additionally, this 2022 average was 2.2mbd lower than the 2019 average.
Delta will be releasing their fourth quarter results tomorrow and have suggested there will be a 15-20% increase in revenue by the year 2023.