With all of the drama about inflation and rising interest rates dominating the headlines, and with numerous predictions of a recession in the coming year, investors received some welcome news this week. American Airlines (AAL) surprised investors by raising fourth-quarter guidance, citing strong demand.
Could this be a sign that the U.S. economy will experience a soft landing in 2023?
Airlines tend to thrive on business travel, so American's announcement could bode well for the economy in the coming year.
In 2020 and 2021, business travel accounted for about 13% of all U.S. air travel. While that may sound insignificant, business travel can account for as much as 75% of airline revenue, due to higher first class and business class fares.
Since airlines tend to rise and fall as a group, technical charts can be an effective way to make head-to-head comparisons. Let's go to the charts to see which U.S. carriers are best positioned to add lift to investors' portfolios:
American Airlines
American Airlines (AAL) has taken off in the past two weeks, climbing over 25% over that time. The stock has made an impressive turnaround, closing at a two-month low on December 28 (point A), followed by a fourth-month closing high on January 11 (point B).
During that time, American climbed above its 50-day (blue) and 200-day (red) moving averages. Essentially, this chart has gone from zero to hero in two weeks.
American Airlines is scheduled to report earnings on January 26.
GRADE: B+
United Airlines
American Airlines' current run is impressive, but it doesn't have the best chart in its sector. That honor goes to United Airlines (UAL) , which is scheduled to report earnings on January 17.
United has flown 28% higher over the past seven trading sessions. This stock has also crossed above its key moving averages, and has formed a clear uptrend, indicated by a higher high (HH) and higher low (HL). This stock closed at a seven-month high on Wednesday.
GRADE: A
Chart Source: TradeStation
Delta Air Lines
Delta's (DAL) chart is similar to American's and United's, in that it's crossed above key moving averages, reached a multi-month high, and formed a bullish trend. The price action here is significant but less enthusiastic.
Delta reports earnings on January 13.
GRADE: B
Chart Source: TradeStation
Discount Air Carriers
While the major U.S. carriers are flying high, discount airlines appear to be grounded.
Southwest Airlines (LUV) is a good example; this stock has failed to form a higher high or climb above its key moving averages, which are trending lower.
Southwest reports on January 26.
GRADE: D
Chart Source: TradeStation
The charts of JetBlue Airways (JBLU) , Spirit (SAVE) , and Frontier Group Holdings (ULCC) all have a similar look.
The bifurcation between major and discount carriers supports the theory that business travel is rebounding. That could be good news for investors who are concerned about a potential recession in 2023.
