U.S. travelers are hungry for international travel. These stocks will likely benefit.

By Claudia Assis

Airports are bracing for a spike in traffic

U.S. airlines are looking at fairly blue skies this summer, with legacy air carriers likely to fare better than low-cost airlines as they may catch tailwinds from the Paris Summer Olympics and the stronger demand for international travel.

Advance bookings on low-cost and ultra-low-cost airlines have declined in recent months, indicating pressure on the likes of Allegiant (ALGT) and Spirit Airlines (SAVE), to name a few, as people turned more cautious about their spending on domestic travel, said Jonnathan Handshoe, an analyst at CFRA.

Legacy carriers such as Delta Air Lines (DAL), United Airlines Holdings (UAL)and American Airlines (AAL) "should fare well in the summer," Handshoe said. "These carriers do have much higher exposure to the international markets than, say, Southwest Airlines (LUV)and JetBlue Airways (JBLU) and the ultra low-cost airlines."

The major carriers also benefit from corporate travel and their tiered fare structure, offerings rarely discounted and more profitable premium seats on first and business classes.

As headwinds, the airlines, big and small, are likely to see rising costs due to higher costs of maintenance. The airlines are holding on to older planes they would otherwise retire due to delays in jet deliveries.

These older planes are also not as fuel efficient, resulting in potentially higher fuel costs even as fuel prices have come down in recent months.

New jets from both makers on either side of the Atlantic, Boeing Co. (BA) and Airbus SE (FR:AIR) (UK:0KVV), are hard to come by, and that's to say nothing about specific delays from Boeing, which faces multiple probes into the making of some of its jets following the Alaska Air (ALK) panel blowout in January.

According to travel and leisure organization AAA, some 3.51 million people will travel by air during the holiday, which marks the unofficial start of summer in the U.S.

That is nearly 5% more people than last year, and around 9% above the 3.22 million on planes on Memorial Day weekend in 2019, the year before the pandemic wreaked havoc on air and every other travel mode worldwide.

"Airports are bracing for a spike in travelers," AAA said. "This will be the most crowded Memorial Day weekend at airports since 2005, when 3.64 million flew for the holiday as the travel industry finally rebounded post 9/11."

Aviation analytics company Cirium recently said that 6% more domestic seats were scheduled for this year's Memorial Day, compared to last year - and up 13% compared to 2019.

That equals some 600,000 more seats this year departing on the Friday of Memorial Day weekend and returning on the Monday in all fare classes for U.S. airlines.

Cirium does not predict airfare, but according to its historical airfare data, Memorial Day weekend fares cost on average $178 for a one-way ticket last year, compared with $169 in May 2019.

The latest CPI shows U.S. airfares dropping 0.8% in April, after a 0.4% decline in March and a 3.6% increase in February.

This summer, U.S. airlines are also well staffed, said Brett Snyder, president of the Cranky Flier website.

A pilot shortage, which had been a continuing problem exacerbated by the pandemic, is not a big issue for the airlines anymore, Snyder said.

Airlines are staffed well, and "in terms of operations there's a good chance airlines will have a good summer," he said.

That's barring technical issues, severe weather, and air-traffic control issues, he said.

For consumers, even though domestic fares have come down, fares will still be "pretty high" this summer, Snyder said.

"Airlines are still trying to find that optimal place to be," and fly as many people as possible for a good profitable fare, but not so high that they may scare off potential travelers.

-Claudia Assis

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05-20-24 1128ET

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