Airline stock investors hoping for a return to normalcy in 2022 got some very bad news in late November when scientists discovered the omicron variant of COVID-19. The omicron news was a devastating blow for airline stock investors, but Bank of America analyst Andrew Didora said Tuesday that omicron has seemingly emboldened airline stock short sellers.

Omicron Underperformance: Didora said airline stocks underperformed the S&P 500 for the third consecutive month in December and underperformed the index in eight of the 12 months of 2021. The recent underperformance is particularly disappointing for investors given the holiday travel season usually makes the fourth quarter the strongest of the year for airlines, Didora said.

Related Link: Stocks Down On Concerns Over New COVID-19 Strain

Many investors scooped up airline stocks in the second half of 2020 and the first half of 2021 betting on a pent-up travel demand once the pandemic comes to an end. Instead, Didora said many airline stocks are now trading at the high end of their historical valuation range even though travel demand remains depressed.

“Our view is that as long as variants remain, it could be challenging for airline stocks to trade at multiples at the higher end of historical ranges as was the case through much of 2021,” Didora said.

Short Sellers Pile In: Short sellers certainly seem to see an opportunity in the near term. Didora added that short interest across his airline stock coverage was up 30.1% in December compared to November. Among the “big four” U.S. airline stocks, American Airlines Group Inc (NASDAQ:AAL) saw the largest jump in short interest at 41.3% followed by United Airlines Holdings Inc (NASDAQ:UAL) at 34.6%. Mesa Air Group Inc (NASDAQ:MESA) saw the largest increase in short interest among all airline stocks at 86%.

Benzinga’s Take: For traders wondering about short squeeze potential, American Airlines has the highest percentage of its float held in short positions at 16%, according to Bank of America. American was also the best-performing big four airline stock of 2021, gaining 13.9% on the year.

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