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Why Did Airline Stocks Rally in November?

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Airlines witnessed the biggest rally

Until the middle of October, airline stocks had been among the most battered stocks due to concerns about overcapacity and rising fuel prices—except for United Continental (UAL) and Spirit Airlines (SAVE). However, airline stocks have been gaining solid momentum since late October.

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

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Every major US airline registered a double-digit increase in their share prices last month. Spirit Airlines was the biggest gainer in the November rally. Spirit Airlines shares rose 23.4%, while Alaska Air Group returned 19.3%. The four largest air carriers, American Airlines, United Continental, Southwest Airlines, and Delta Air Lines (DAL) witnessed gains of 14.5%, 13.1%, 11.2%, and 10.9%, in their respective share prices.

What drove the momentum?

The turnaround could be due to most airline companies’ reporting impressive third-quarter results. Most of the air carriers have seen improved key metrics and provided optimistic outlooks, which increased investors’ confidence in the stocks. Falling oil prices point to enhanced profitability in upcoming quarters, which prompted investors to stay invested in airline stocks.

Airline stocks also got a boost from positive remarks on the entire industry from Goldman Sachs (GS) and Credit Suisse (CS). Both firms think that strong travel demand, the strong revenue growth trend, and cost controls will help the industry with margin expansion in 2019 for the first time since 2015.

In late November, airline stocks got another boost from Spirit Airlines’ upbeat outlook for the current quarter. The higher outlook spread optimism among investors. Investors think that other airlines could report better-than-expected fourth-quarter results.

In this series, we’ll discuss how oil prices impact airline stocks. We’ll also discuss analysts’ views, valuations, and ratings.

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