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Airline stocks will stay stuck on the tarmac this year: Traders

Some of the biggest airline stocks have surged this month, but traders are dubious as to whether these shares will really take off.

While three industry giants, Delta, United and American Airlines have seen their stocks rise, they are still down around 20 percent this year. Smaller airlines like JetBlue were faring no better. The trend will continue, according to Manhattan Venture Partners chief economist Max Wolff, especially given labor-market struggles and global events playing out around the world.

"We still have the flat wages, and last month notwithstanding we had some issues with the labor markets," Wolff said Wednesday on CNBC's "Power Lunch." On top of that, "the world is inspiring less people to go further from home because there are lots of nerves for one reason or the other. [Plus,] the political cycle is also causing people to batten down the hatches."

This means that airlines don't have much pricing power, especially as consumers shy away from air travel.

"They're expanding inventory into a low-pricing-power environment where there aren't big mergers to push up laggard shares," Wolff said. "There [also] isn't that much relief probably coming down the pipeline in terms of energy prices."

All of this leads to the airlines still facing the one big challenge they have fought against for the last two years or so: generating revenue. Passenger unit revenue, which measures revenue per seat flown a mile, has declined during that time and doesn't show much signs of picking up. This has led industry giants like American Airlines to report low revenues despite beating earnings estimates as they did during the first quarter.

According to Erin Gibbs, equity chief investment officer at S&P Global, this is turn keeps airline stocks down as companies scramble to solve the revenue puzzle, all while airlines expect even lower revenues this year.

"Though they have had a better capacity, there's still an enormous amount of sale activity," said Gibbs. "You would've thought with all the mergers and acquisitions that with three less major players, we would've had less sales activity, but that just hasn't happened."

Gibbs sees the airlines picking up in 2017. But until then, the industry's big players can expect to stay grounded.


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Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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