Why Southwest Airlines Stock took off in the first half of 2021
The so-called “reopening of trade” gained momentum in early 2021, and airline stocks were among the beneficiaries. Southwest Airlines (NYSE: LUV) gained 13.9% in the first six months of the year, according to data provided by S&P Global Market Intelligence, and rose 36% in April before retreating a bit.
Airlines were among the industries hardest hit in 2020 by the pandemic, as travel demand nearly evaporated a year ago. As vaccine rollout accelerated, demand accelerated, and some of the hardest-hit sectors during the height of the pandemic recorded impressive gains from last fall through spring.
Airlines were one of them. Southwest’s 36% gain in mid-spring for the year actually lagged behind many other airlines, notably American Airlines Group (NASDAQ: AAL), JetBlue Airways (NASDAQ: JBLU), and Hawaiian Holdings (NASDAQ: HA). One thing that all of these airlines have in common is that they aggressively pursue leisure activities.
With tourists, not businesses, leading the way to airports, airlines that have route networks and ticketing policies favored by leisure travelers have seen the recovery materialize more quickly than their rivals that s ‘rely on business accounts.
The rally has fizzled out in recent months amid concerns over new variants and on the basis of analysts’ suggestions that stocks have started to take a lead on companies.
It’s a strange moment right now for airline investors, and Southwest holders in particular. On the one hand, airlines are definitely at the lowest point of the pandemic. Southwest remains a blue chip operator with a strong balance sheet and the means to weather any potential turbulence ahead. On the flip side, the company’s longtime CEO Gary Kelly is preparing to step down, and the airline is having a miserable summer staffing its flights and avoiding cancellations.
There is nothing wrong with holding Southwest for the long haul and weathering the current storms, but I would advise caution to those considering buying at this time. Until Southwest’s internal issues are behind it all and we’re sure the pandemic is fully under control, there’s likely a cap on how high airlines can fly, and after the rally of the first half, there may not be much room to run at this time.
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