Written by Brenda Nakalema

US travel restrictions lifted, Airline stocks soaring

Companies in the airline industry are all cheers after the U.S finally opened its doors to international travellers. For a …

Photo by Miguel Ángel Sanz on Unsplash

Companies in the airline industry are all cheers after the U.S finally opened its doors to international travellers. For a period of close to 20 months, travellers have been unable to see their favourite destinations due to Covid- 19 restrictions, however with the easing of travel restrictions, vaccinated people can finally make due on their holiday plans.

Investors of airline stocks are cautiously optimistic as they hope that the lift on restrictions will be enough to encourage the millions that have been kept home to finally hope on a plane and travel to their dream destinations.  With any luck, these travellers will relive the industry to the huge slump it has been experiencing since the beginning of global lock down.

Share of American airlines (AAL) and Delta Airlines (DAL) are up 14% and 13% in November, respectively, compared to the 2% rise for the S&P 500. The good news has not been limited to the U.S with European carriers such as British Airways owner IAG (ICAGY) and Air France- KLM also seeing a rise in their stock values.

Interestingly airlines across Europe reported full or near full flights to the United States owing to the ease in travel restrictions. Both the Lufthansa group (DLAKY)and Virgin Atlantic reported 31 fully booked flights and 98% fully booked flights respectively. At the same time, both Swiss Air and British Airways reported a high passenger volume on flights departing to U.S destinations.

With a shift in strategy employed to combat covid-19, countries are taking measures to live along side the virus as opposed to attempting to eliminate it completely. This might spell hope for the broader international travel industry which still faces tight restrictions in most destinations. For instance, last month, Singapore announced that it would eliminate the mandatory quarantine for fully vaccinated international travellers which has been widely viewed as a sign of greater opening up in South- East Asia.

“International has picked up,” said CEO of Expedia (EXPE), Peter Kern, as he was addressing analysts after the company’s reported earnings last week. Kern explained that the move from both the United States and Singapore provided a much needed boost that saw shares rise almost immediately after the announcement was made.

Despite the good news, travel companies are hesitant to claim a victory over the bad times. “As we look ahead,  it’s clear that the recovery  will continue to be choppy,” said Delta CEO Ed Bastian on the company’s recent earnings call. However, Bastian went ahead to point out that there was “clearly underlining momentum,” thanks in part to the lifting of international travel rules.  He predicted a 75% restoration of Delta’s business by the end of 2021.

Optimism is high in the travel industry but a blind eye cannot be turned to the persistent proliferation of new Corona virus strains that threaten any steps taken toward recovery of the economy.  Expedia reported a rise in cancellations of travel and lodging as a result of the rise in Delta variant cases.  Another thorn in the airline industry’s back is the rise in fuel price which airlines might be forced to pass onto customers. This could spell more cancellations in the near future.

The future can’t be predicted, but for now, airlines have cause to celebrate albeit with bated breath as they watch how the corona situation is tackled by various governments going forward.