For a really long time and for many reasons, airline stocks have been notoriously risky investments. It is an industry that is critical for the global economy and so many businesses and whole industries rely on the airlines to continue delivering a consistent and cost-controlled product. But the industry is always in a constant state of peril and despair regardless of their built-in and consistent product demand.
Ever since Covid-19 the global lockdowns and travel bans have sent shock waves through the world and the airlines have all suffered greatly. Yesterday American Airlines stock hit an all-time low of $8.83 finishing down nearly 6% on the day. United Airlines also had a tough day closing down over nine percent for the day. Southwest also closed 4.5% down for the day as well. Southwest is down over 50% in the last two and a half months when in the same timeframe American and United are both down over 75%.
As the global shutdown is being reversed in many areas it still is unclear what level most countries and states will open fully, and what restrictions will be imposed. So if you are going to buy into this industry you need to make sure that you account for the unknown variables. The biggest one is will the airlines get bailed out if they need to be? It seems consistent that the US government will continue to bailout perceived vital industry players like major airlines and others. But no matter how likely you might feel that the government will come through again and save the day, you cannot count on that at all, this is just part of the risk that comes with investing in “value” buys.
That is exactly what the airline stocks are currently offering at the moment. Value, or at least perceived value. Whenever investing it is important to know what your plan is and stick to it. So if you are buying into the Airline stocks you should be prepared to hold onto any of these stocks for over a year plus. Value buys like this given the uncertainty need to have a real runway for some security and realistic expectations. UAL and AAL could easily pop 100% in a short few months if the economy comes roaring back, but once again. You can’t count on the guarantees.
Disclosure: The author does hold UAL as a value stock.