Short sellers boost bets against airlines in May as travel season heats up

Short sellers have increased their bets against passenger airline stocks even with projections for record-high travel this summer.

At the end of May, short interest in passenger airlines was at 5.37%, up 67 basis points from the end of January and the highest level of short interest in the industry in nearly a year, according to the latest S&P Global Market Intelligence data. Short interest measures the percentage of outstanding shares of a given company or industry held by short sellers.

The increase in short interest in passenger airlines comes as the trade association Airlines for America projected that an all-time high of 257 million passengers will board US airlines from June 1 to Aug. 31. Airline stocks have struggled since the pandemic.

Stocks, fares down

The S&P 500 Passenger Airlines index — which includes Delta Air Lines Inc., Southwest Airlines Co., United Airlines Holdings Inc. American Airlines Group Inc. and Alaska Air Group Inc. — is down about 36% from its pre-pandemic levels. The S&P 500, meanwhile, is up about 34% over the same window.

Air revenue passenger miles, a measure of miles traveled by paying passengers, were down 1.36% in March from the same month in 2019, according to the latest seasonally adjusted US Bureau of Transportation Statistics data. The metric has gradually recovered after cratering in 2020.

In May, airline fares were down 13.4% from a year earlier, according to the latest US Bureau of Labor Statistics data. Airfares bottomed out in the early days of the pandemic and soared throughout 2022 as leisure travel largely resumed before falling again more recently.

Most-shorted airline

As of the end of May, Hawaiian Holdings Inc. was the most-shorted passenger airline, with 12.81% short interest. American Airlines followed with 9.85% short interest and Spirit Airlines Inc. with 7.42%.

Sector breakdown

Industrials, the stock market sector that includes airlines, had short interest of 3.23% at the end of May, up 23 basis points since the start of 2023.

At the end of May, consumer discretionary remained the most-shorted sector at 5.72%, as sellers continued to believe that persistently high inflation will dampen consumer demand.