The airlines industry has been facing weak demand for air travel and increased travel restrictions amid concerns surrounding the spread of the COVID-19 omicron variant. As such, we think it could be wise to avoid airline stocks Southwest Airlines (NYSE:LUV) and Mesa Air (MESA). They look overvalued and have have been downgraded recently. Read on.The COVID-19 pandemic dealt a severe blow to the demand for air travel and the industry faced an uncertain future. The impact was so intense that many airlines had to lay off staff to reduce costs. Although the economy is recovering gradually, the demand for air travel could remain low as the work-from-home trend continues and people continue doing business from their homes and avoiding business travel.
With the reports of the new coronavirus variant, omicron, surfacing recently, the airline industry is again expected to suffer as nations revise travel entry rules and implement border restrictions. According to a Kyodo news report, the global airline industry is expected to remain unprofitable in 2022 with a combined net loss of $12 billion, because travel demand will remain subdued at below pre-pandemic levels.
Against this backdrop, we think it could be wise to avoid airline stocks Southwest Airlines Co. (LUV) and Mesa Air Group, Inc. (NASDAQ:MESA) because they have poor growth prospects and their valuations look stretched at their current price levels. Furthermore, they have been downgraded recently by analysts.