In July 2021, global markets posted gains, spurred by companies’ Q2 earnings announcements and positive market sentiment. Not only did “traditional investments” recorded strong price gains, but cryptocurrencies also had their 5 minutes of fame.

Positive sentiment entered another dimension when Richard Branson reached space on a Virgin Galactic flight, setting a new milestone for the future of the aviation industry. For us mere mortals, the first commercial flights are planned for 2022 and high bids are submitted for tickets.

Those who cannot afford a starting price of $450,000 per seat will have to satisfy their need for new destinations and experiences by using good old airline companies.

Although the world pandemic has brought tremendous losses to the industry and nailed airplanes to the ground, we already start seeing a recovery in the sector. The airlines have been broadening access to vacation destinations and are slowly recovering from the lockdowns around the world.

Seasonal patterns in the airline industry are also spurring rallies in the stocks of several airline companies starting in late August.

One of them is Southwest Airlines Corp. (LUV), one of the leading airlines in the US. The company focuses primarily on short-haul and point-to-point flights. During the pandemic, the company has suffered losses. But the question remains whether the stock will regain its strength during the historically strong seasonal period.

Southwest runs a largely domestic network focused on leisure travelers and maintains one of the strongest balance sheets in the industry. These attributes are proving especially valuable: leisure travel has rebounded faster than business travel and long-haul international flights. By looking at the past performance of Southwest Airlines shares we can draw some conclusions and prepare accordingly.

Seasonal pattern of Southwest Airlines over the past 10 years

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Interactive Chart: Seasonax

The 10-year seasonal chart of Southwest shows a strong H2 rebound in the stock beginning in September. Before we dive deeper keep in mind that the seasonal chart shows the average price pattern of the stock calculated over the past several years. The horizontal axis shows the time of the year and the vertical axis shows the percentage changes in the value of the stock (indexed to 100).

In other words, the stock is entering into a seasonally favorable period from September 3 until December 7. On average Southwest Airlines has delivered solid returns of 18.37% during this time period over the past 10 years, which corresponds to a very respectable annualized gain of 91.90%.

Further analysis reveals the frequency of positive returns during this phase. The bar chart below depicts the return posted by Southwest Airlines in the relevant time period from September 3 to December 7 in every year since 2011. Blue bars indicate years with positive returns and red bars indicate negative returns.

Pattern return for every year since 2011

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Interactive Chart: Seasonax

Flying Stocks

Based on an analysis of the past performance of S&P 500 sector indexes, industrials are taking the lead in the coming months.

Southwest is not the only airline company that is exhibiting strong upcoming seasonality. Delta Air Lines (DAL) and Alaska Air Group (ALK) have caught my attention as well.

Over the past 10 years, Alaska Air Group has entered into a strong seasonal period from August 24 to November 30. In this time span of 69 trading days, the shares rose by 18.51 percent on average.

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Interactive Chart: Seasonax

Moreover, the pattern returns in that period have been consistent and positive since 2011 with just one outlier year in 2017, when the stock posted a loss of 5.49 percent during the period under review.

Pattern return for every year since 2011

Interactive Chart: Seasonax

Similar to Alaska Air Group, Delta Air Lines has also posted positive seasonal returns from August 25 to December 15 over the past 10 years.

Seasonality plays a major role in the travel industry. On the one hand, it is shaped by the type of travel. Leisure travel is stronger during school holiday periods. Business travel is usually weak in the summer when many business travelers are on vacation. These results can be also seen in the company’s quarterly reports that are published during the year. Good weather conditions are another factor that influences leisure travel and spurs demand for extra seats.

When analyzing individual stocks it is important to take the current market situation into account as well as the "recent negative impact" of the pandemic that might make turning a profit difficult in the third and fourth quarter of 2021. Investors who understand the seasonality of their market can time their strategies in line with the expected seasonal effects.