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Airline Stocks: November’s Rally Didn’t Last Long

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Airlines’ momentum

In November, most of the airline stocks had their biggest gains in 2018. The US Global Jets ETF (JETS), which invests in US and non-US airline stocks, rose 11.7% in November—the biggest gain in a single month in 2018. JETS significantly outperformed the SPDR S&P 500 ETF’s (SPY) returns, which increased 1.9% in November.

However, airlines’ momentum didn’t last long enough. Most of the stocks have fallen by double-digits from the closing prices in November. So far, JETS has lost 11.4% of its value in December. American Airlines (AAL), Delta Air Lines (DAL), United Continental (UAL), Southwest Airlines (LUV), and Spirit Airlines (SAVE) have fallen 19.3%, 11.9%, 9.3%, 8.3%, and 8%, respectively, from their closing prices at the end of November.

Multiple headwinds have been responsible for the fall including the broader market sell-off, the industry rating downgrade from Wolfe Research, and Delta’s lower-than-expected outlook for the current quarter and next year.

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Why airlines rose in November

Until mid-October, airline stocks had been among the worst performers due to concerns about rising fuel prices and overcapacity—except for United Airlines and Spirit. However, airline stocks gained solid momentum in late October, which continued throughout November.

Most of the US air carriers registered a double-digit gain in their share prices last month. Spirit and Alaska were the biggest gainers with a one-month return of 23.4% and 19.3%, respectively. The four largest air carriers, American Airlines, United Continental, Southwest Airlines, and Delta Air Lines witnessed gains of 14.5%, 13.1%, 11.2%, and 10.9%, in their respective share prices.

Multiple factors were responsible for the significant rise in airline stocks. The main triggers were airlines’ impressive third-quarter results, the optimistic outlook, and stronger key metrics. Falling oil prices, positive industry remarks from Goldman Sachs (GS) and Credit Suisse (CS), and Spirit Airlines’ upbeat outlook for the fourth quarter drove the optimism in the airline industry.

Next, we’ll discuss the factors that are responsible for broader market sell-off in December.

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