The U.S. government has announced plans to spend “tens of billions” to upgrade the air traffic control system, advancements that will hopefully help alleviate concerns about flying following a series of high-profile incidents.
The airlines are trading higher on the news, with Delta Air Lines (NYSE: DAL) and United Airlines Holdings (NASDAQ: UAL) each up 7% as of 1:30 p.m. ET and American Airlines Group (NASDAQ: AAL) up 5%.
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Bringing order to in-air chaos
The nation’s air traffic control system is in desperate need of an upgrade, and incidents this year including a fatal mid-air collision over the Potomac River in Washington, D.C. and a recent outage at Newark Liberty International Airport have some questioning whether it is safe to fly.
United Airlines has been forced to slash its busy summer schedule due to disruptions at Newark.
On Thursday, Transportation Secretary Sean Duffy outlined his proposal to fix the system during a Congressional appearance that also included several airline CEOs. The administration is urging Congress to approve billions in funding to replace aging radar and other equipment and overhaul the tech infrastructure.
Speaking elsewhere on Thursday, President Donald Trump said the government is “now in the market to buy a gorgeous brand new system” to handle air traffic control.
Though the changes cannot be implemented overnight, a change in the narrative away from focusing on the issues and toward fixing them could help boost demand for air travel.
Is now the time to buy airline stocks?
Unfortunately for the industry, airline investors have a lot more to worry about than just air traffic control modernization. This is a highly cyclical industry that is tied closely to the health of the consumer. When times are tough, households and businesses are more likely to cut back on travel than on paying for basic essentials.
On earnings calls this quarter, execs largely said that demand is holding up for now but could come under pressure if tariffs and inflation sustain into the summer. With that in mind, the stocks are also likely moving on progress on the trade war front.
Those considering buying in now should pay close attention to demand trends in the weeks and months to come. For investors willing to accept the potential for turbulence, Delta and United have industry-leading balance sheets and the scale necessary to take advantage of an uptick in interest in flying from here.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
