An American Eagle aircraft taxis as a Southwest Airlines aircraft arrives at Reagan National Airport in Arlington, Virginia, on January 24, 2022.
Joshua Roberts | Reuters
The sector’s latest fall is paring a broader market swoop as investors weigh the prospect of a recession and how aggressive the Fed will be to cushion the sharpest rise in consumer prices since the early 1980s.
American Airlines There was a drop of almost 10% on Thursday afternoon, touching the lowest price since November 2020. Southwest Airlines was close to 6%, near a two-year low. Delta Airlines And United Airlines were each down 8%, while the NYSE Arca Airline Index, which tracks 18 carriers, dropped more than 7%.
On Wednesday, the Federal Reserve raised interest rates by three-quarters of a percent in an effort to contain inflation, the biggest increase since 1994.
“If you’ve flown on a plane recently, the planes are too full and plane tickets are too expensive,” Federal Reserve Chairman Jay Powell said on Wednesday.
Strong travel demand has been a boon for airlines after more than two years of the COVID-19 pandemic, with most recently Delta, United and American. Forecast return of profitability. Officials at the carriers have said that passengers are digesting the higher fares.
Airlines have been disrupted. delta, JetBlue Airways, Spirit Airlines, Alaska Airlines And others have cut summer flight plans to make themselves more attractive. regular interruption And in some cases to address the labor shortage.
According to people familiar with the matter, the airline’s CEO will be meeting with Transportation Secretary Pete Buttigieg late Thursday to discuss how prepared they are in the face of delays and cancellations this year.
There are some indications that the travel boom may be starting to cool, albeit from higher levels. Fair-tracker Hopper said Wednesday that domestic airfare fell for the first time this year, going round-trip to $390, down from $410 in mid-May. It said this was in line with general seasonal trends.
Start-up US airline Avalo on Thursday said it is cutting its fares by 50% for all 25 destinations to help provide some inflationary relief for people during these uncertain times.
What will be important for airlines going forward is the demand for post-summer travel, when business travel typically peaks. Business owners are concerned about a recession and in some cases even announce layoff Travel plans can be curtailed.
“The market is reacting to anything that is cyclical, anything that is considered sensitive to the economy,” said Savanti Sith, airline equity analyst at Raymond James. “It’s disappointing to see stocks as we go into this recession like we’ve never been before.”
She pointed to strong, suppressed demand, strong consumer savings and airlines’ liquidity build-up during the pandemic, meaning they won’t have to load their balance sheets with expensive debt.