Commercial Airline Stocks Continue Post-Pandemic Rollercoaster As Wheels Up Falters

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It has been a tough road to recovery for the aviation industry since the COVID-19 pandemic upended travel in 2020. Even as vaccines and boosters roll out, reinforcing consumer confidence in the safety of air travel, a shaky market means a tepid recovery for commercial airlines and private aviation companies alike.

Commercial airlines continue a rollercoaster recovery

The start of November, much like October, has shown some hope for beleaguered airlines. This was likely driven by the U.S. easing international travel restrictions, as well as in part by a momentary bump in the market, buoyed by a strong October jobs report, strong earnings, and progress on vaccination and COVID-19 treatments. 

However, what looks like the start of another mid-month dip for aviation stocks has many in the industry wondering if, also like October, the gains will gradually be rolled back as weeks drag on. Major players like United Airlines (UAL), American Airlines (AAL), Delta Airlines (DAL), Jet Blue Airlines (JBLU), have already seen some of the value they added in the early weeks of November dissipate. And as Talk Markets contributor David Marshall noted, airfare decreased by 5% in October even as inflation was the common theme in other sectors. Naturally, concerns about revenue fuel additional investor skepticism towards commercial airline stocks.

United Airlines is one of the strongest stocks in the commercial airline space, and yet its own recovery throughout the pandemic has been a roller coaster ride. Other major airlines, including Delta Airlines and American Airlines, have experienced similar trends.

Whether these companies can retain the recent growth remains to be seen. As the holidays approach and traveler confidence in COVID-19 vaccines, counter-measures, and treatments increases, there may be good reasons to be optimistic. Other airlines, like Southwest Airlines (LUV), continue to struggle without signs of significant recovery. 

Private aviation enters a tough public market

It’s not only commercial airlines that are worth keeping an eye on, though. Private aviation companies are also entering the public market. Wheels Up (UP) became the first private aviation organization to begin trading publicly on the New York Stock Exchange in July. Rumor has it that more private flight companies, which rose in popularity amongst travelers during the COVID-19 pandemic, are primed to go public in the near future as well. 

If Wheels Up is a test case, private aviation will have to earn its place in the market. After an earnings call that showed a $28.5 million reduction in net income, even as revenue reached record levels, the company’s share value decreased to $5.84 at the time of this writing -- that’s less than half the stock’s value at the time Wheels Up went public. 

After an initial spike following Wheels Up’s entrance to the New York Stock Exchange, the company has floundered, falling to $5.84 per share over the past four months. Will strong revenue be enough to right the ship as net income declines?

To make matters worse, Morgan Stanley released a report that suggested Wheels Up’s business model only accommodates a total addressable market of the top 1% of U.S. households, or those that make about $2.7 million annually. As Wheels Up tries to gain a foothold in the public markets and other private aviation companies prepare to go public as well, they will continue to contend with their biggest historical obstacle: accessibility. 

Private aviation companies will have to prove they are accessible and cost-effective enough for a wide swath of travelers to choose flying private overbooking a commercial flight. This doesn’t only mean cost, but the ease with which travelers find and book private flights as well. Time will tell if a private aviation company finds the right combination of technology, process, and operators to truly disrupt the space.

Disclosure: Marc is the President and CEO of Flewber, a private airline taxi service.

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Comments

Leslie Miriam 2 years ago Member's comment

Interesting, thanks.