With solid progress being made on vaccinations and the relaxation of travel restrictions, the airline sector is recovering from last year’s pandemic-driven losses. However, elevated oil prices are a major headwind against the industry’s revival. We believe that fundamentally sound airline stocks Southwest Airlines, Delta Air Lines, United Airlines, and American Airlines (NASDAQ) are solid investments now, regardless of rising oil prices. Keep reading. The COVID-19 Pandemic caused the airline industry to be among the hardest-hit sectors. Lockdowns and restrictions on travel were implemented last year. However, the International Air Transport Association (IATA) expects the worst part of COVID-19’s effects on the airlines to be over and that total industry losses to fall considerably in 2022. IATA predicts that the number of passengers will increase by 3.4 million in the next year. This is almost at par with 2014’s levels.

However, the key barrier to the industry’s recovery is the rallying oil prices, as fuel prices negatively correlate with the profitability of airline operators. On October 25, oil prices reached multi-year heights. U.S West Texas Intermediate WTI crude futures rose to their highest point since October 2014 and then fell to its third-year record. In 2021, fuel costs will account for 19% of all airline expenditures.

We believe that oil prices are still high, but we also think Southwest Airlines Co., Delta Air Lines, Inc., United Airlines Holdings, Inc., and Southwest Airlines Co. American Airlines Group Inc. (AAL), could provide solid returns due to their fundamental strength, and the anticipated increase in holiday travel.

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