By Jon Sindreu
While many sectors, like big banks and crypto, were seen as benefiting from a second Trump administration, airlines weren't on investors' radar-especially in Europe. The recent market reaction calls for a reassessment.
Since Wednesday, a Dow Jones index of U.S. airlines has gained roughly 6%, twice as much as the S&P 500. Budget carriers such as Frontier and Spirit have been among the top risers. Spirit is in dire straits and may need to be acquired by a rival to be saved. But antitrust officials managed to get a merger between Spirit and JetBlue Airways blocked earlier this year. Investors believe that the Trump administration will take a laxer approach.
However, other airlines, such as United Airlines, have surged as well.
Surprisingly, many European operators also had a great couple of days, even as European stocks wobbled on fears of damaging U.S. tariffs on European goods.
To be sure, foreign airlines are unlikely to be directly hit by this-although higher import costs can make aircraft more expensive. But they don't directly benefit from any proposed Trump policies either.
Still, Budapest-based Wizz Air gained more than 2% Wednesday, though it struggled Thursday after releasing disappointing earnings. In the span of these two days, Germany's Lufthansa and Ireland's Ryanair have risen about 2% and 3%, respectively, beating the broader European equity market by a big margin.
What is going on? Here are three ideas. First, airline stocks are strongly correlated with crude prices, which have fallen in expectation of a government that is more permissive about oil drilling. Fuel makes up a quarter to a third of carriers' costs. Still, it tends to be passed on to consumers within a few months.
Second, Bernstein Research analyst Alex Irving suggests investors may be anticipating greater chances of an end to the war in Ukraine. That could be why Wizz, an Eastern European operator, rose a lot Wednesday.
There is a third, more straightforward explanation: Economists reckon Trump's proposed policies could widen the U.S. budget deficit to unprecedented levels for a healthy economy, in turn boosting consumer and corporate spending. That could be particularly good for trans-Atlantic business travel, which makes up a big chunk of profits for United, Lufthansa and British Airways. Even Ryanair could gain, if Americans take more vacation flights within Europe.
The final outcome of the "Trump trade" remains uncertain. For now, though, it keeps spreading.
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(END) Dow Jones Newswires
November 07, 2024 11:20 ET (16:20 GMT)