Airline stocks: ‘We’re crying wolf’ every time there’s a COVID scare, analyst says

Helane Becker, Cowen senior research analyst, examines the relationship between airline holdings and COVID variants as travelers become more accustomed to pandemic regulations.

Video transcript

BRIAN CHEUNG: Welcome back to Yahoo Finance. If you've taken a look at shares of United Airlines or Delta Airlines over the last week, hasn't been a pretty picture, especially with those concerns about the omicron variant bringing a bit of consternation to investors in the airline space.

But one longtime airline sector analyst-- that's Helane Becker of Cowen-- said in a note to clients on Tuesday that she still has buy ratings on a lot of the airlines. So Helane, it's great to have you on the show today. Want to elaborate a little bit more on this call that you have on the egiht airline stocks that you cover here. Why do you say it's still OK to buy, despite the concerns that we've been seeing and the market jitters over this new variant?

HELANE BECKER: Yeah, thanks for having me, Brian. It's good to see you. So I think three things. One, I think that as these variants continue to occur, people will eventually get used to them and realize maybe this is endemic. I don't know for sure. But I feel like-- I feel like we're crying wolf every time there's a scare. And at some point, people will just roll their eyes, especially if you're vaccinated and you're getting boosters. I guess I always sort of thought that once we-- we would have to get vaccinated once a year and that this would be a flu-like virus. And we always get flu shots every year. So that's one thing.

And I think people will continue to travel. I think the issues with international travel may be a little greater because of testing and all the requirements. And of course, you don't want to be out of your home country and have your country establish new restrictions. That could be concerning. So I think domestic travel will continue to be fairly strong. And we saw-- you know, we saw that happen over Thanksgiving. We mark, like, the 11 days from November 19 to November 30, and we thought we'd see about 22, 23 million people travel.

And we saw 20-- almost 25 million, 24.8 million people travel. So that was just down about 12 and 1/2%, 13% from 2019's level. So that says to me that people are willing to get on planes and willing to see, at least, friends and family. And we did see a near record, right, for pandemic travel on the Sunday after Thanksgiving, when it was, I think, 2.4 million people traveled. We haven't seen that since pre-pandemic.

BRIAN SOZZI: Helane, is there one airline that has outsized domestic exposure that you really like?

HELANE BECKER: So the biggest domestic airline is American. We have a market perform on American just because of-- I don't know. The stock had done everything we thought it was going to do. We lowered the rating, and then it kind of backed off. So we'll see what happens there. But they're the largest. And then United, we actually have an outperform on. 15% of revenue is domestic, 50% international. And so you get that, but they're not as big in the domestic market as American is.

Then if you're just ultra low cost or low cost airlines and you want domestic focused only, you would look at Allegiant, you would look at Frontier. They have some Mexico routes and Caribbean. You'd look at Spirit, a lot of Caribbean exposure. And all those hotels in those leisure heavy markets, the Caribbean, Mexico, they have good testing opportunities for people coming back into the United States.

So, to us, those are good alternatives if you're concerned about travel to Europe or South America and other places in Latin America. We don't think Pacific travel is coming back for at least another two years, you know, 2023, 2024, especially if this virus continues to mutate and cause this panic that we see, like, every time it happens.

JULIE HYMAN: And Helane, the pics that you have, the outperform ratings that you have on companies like you mentioned, like UAL, like Alaska and Allegiant and JetBlue and Frontier, besides the sort of circumstantial reasons that you have those outperforms, where you talked about the geographic opportunities, are there also operational reasons? For example, is UAL just operating better than some of its larger competitors?

HELANE BECKER: Yeah, that's a great question. And the answer for United is yes. So the biggest difference between them and Delta and American specifically was they didn't retire any wide bodies. So they can grow quicker in international markets. But the other thing that they did that I think is even more important was they reached an agreement with their pilots very early in the pandemic to keep every pilot in his or her seat.

And what that did was they just reduced the number of hours the pilots were flying. They're guaranteed 55 minimum a month. They normally fly 75 to, like, 80 ish maybe, maybe 85, depending on their domestic, international. But they took hours down to sort of high 30s, low 40s. And what that did was by keeping everyone in their seat as they've been able to grow, they were able to-- they've been able to just increase people's hours. And so they haven't had any of those dislocations that the rest of the peer group has had. So that's been a big positive for United.

They're also a leader in sustainability. Delta is a leader, you know, as well. But United is really a leader in sustainability in that area and diversity. United is going to hire 10,000 pilots over this decade, half of which they would like to be diverse candidates. So that's really important for them. It's important for some investors. They've really done a better job operationally. They haven't had as many issues, although I fly in and out of Newark Airport a lot. And trust me, Newark is an issue. [LAUGHS] Lots of delays at that airport. But you get used to it. It's like when people complain to me about flights, I'm like, welcome to my world.

BRIAN CHEUNG: Right, no, as a New Jersey native, Helane, I can definitely attest to the fact that Newark is, indeed, a mess. Helane Becker, Cowen senior research analyst, thanks so much for breaking all that down here on Yahoo Finance.