Airline shares take off on holiday optimism
Airline shares have rallied ahead of Labor Day, an anticipated turning point for the troubled industry when many carriers will begin slashing seat capacity to match the drop in demand.
Investors are hoping capacity cuts will allow airlines to jack up ticket prices and reverse declining revenue. But the plan could falter because business travelers, the industry’s bread and butter, have yet to return.
"We’ve seen some improvement, but I think the bulk of that is being driven by the leisure traveler," said analyst Matt Jacob. "But the business traveler, those who buy close to booking and pay a premium price, that section of the business has continued to be weak.
"So the concern is, once we reach Labor Day and the end of the leisure travel period, how will that impact the improvement we’ve seen?"
Airline stocks have been volatile as investors try to figure out that answer.
After hitting its lowest point on record in March, the NYSE Arca Airline Index has bumped along this summer as airlines readjusted outlooks because of depressed demand and declining revenue. But since late June, the industry benchmark has managed to climb more than 44 percent.
That enthusiasm is tempered among many airline analysts.
"Our short-term revenue data suggest a little strength in late summer," said UBS analyst Kevin Crissey in a recent note.