American Airlines shares are in focus today after a 5.4% rally. It's been a remarkable start to the year for the company, whose shares have shot to $16.20 from $12.72 and is now trading at the best levels since June.
For the broader economy, airlines are a great spot to watch this year because they're at the nexus of a few tentative trends.
1) Air traffic
IATA reported this week that that total air traffic in November 2022 rose 41.3% compared to a year earlier but is still at only 75.3% of pre-pandemic levels.
However American Airlines today said Q4 revenue will be up 16-17% from Q4 2019, above prior guidance of 11-13%, much of that is higher costs but it speaks to demand.
"We've only had a couple of weeks here in 2023 but we like what we've seen [in terms of bookings]," CEO Robert Isom told CNBC today.
2) Business as usual
A major speaking point of the pandemic was that work from home would dominate and that business travel and conferences were dead. Not so fast. The new normal is beginning to look like the old normal as business travel returns and workers are called back to the office.
3) Consumer strength
Air travel for pleasure is an easily-discarded luxury for consumers the world over. Much of the pent-up demand from the pandemic has been address and we're moving to a more-normalized post-pandemic world where the economy is the driving factor in air travel. The comments from American Airlines point to a healthy US consumer, at least for now. If there's a turn in commentary from airlines, it's a great leading indicator that the consumer has stalled. Notably, last month Jet Blue wasn't as optimistic about bookings.
4) Oil demand
Forecasting oil demand this year is tricky because of recessionary fears and conservation efforts in Europe. Where it's particularly difficult is aviation, where at return to 2019 demand levels would mean the crude market is undersupplied. Earlier this week, oil trading legend Pierre Andurand warned that aviation would be a source of upside demand surprise.
"I think where most analysts have their oil demand forecasts wrong is on jet-fuel. According to Rystad real-time demand, the last 7-day average global jet fuel demand is already up 1mbd year-on-year, and 550kbd above 2022 average. And 2022 average was 2.2mbd below 2019 average," he wrote.
Tomorrow we get Q4 results from Delta, they've previously forecast a 15-20% jump in 2023 revenue.
