Shares of American Airlines Group (NASDAQ:AAL) and United Airlines Holdings (NASDAQ:UAL) both traded up more than 5% on Tuesday afternoon, caught up in a broader surge higher as markets brush off concerns about the ongoing coronavirus outbreak in China.
The airlines were among the biggest losers as virus fears were growing, with both stocks down more than 12% for the month in late January, and are bouncing back now that the panic is at least temporarily subsiding.
The coronavirus outbreak has weighed heavy on investors for weeks now, with airline stocks under pressure due to concerns over revenue lost to canceled flights, and vacationers deciding to defer travel out of fear of getting sick.
American and United were among the airlines most affected, but for different reasons. American has the highest debt burden among major airlines and is seen as the most vulnerable to an unexpected drop in demand.
United is the U.S. airline most exposed to the China market, with an estimated 4% of its capacity tied to China and 15% tied to the Asia Pacific region. In comparison, American has about 2% of its capacity tied to China and 6% to Asia, and Delta Air Lines about 3% and 9%, respectively.
Hawaiian Holdings (NASDAQ:HA) is also moving higher on Tuesday. Though Hawaiian Airlines has no China capacity, it is No. 1 among U.S. airlines in exposure to Asia, which accounts for close to one-fourth of its revenue.
In recent days all the major airlines have canceled flights to China into April, a move that helped put investors at ease -- it's better for the companies not to operate service when there's no demand, rather than have the expense of flying nearly empty planes. A general sentiment that China is moving to contain the virus, and is willing to stimulate its economy to make sure there are no long-term ramifications of the outbreak, is also helping move airline shares and other stocks higher on Tuesday.
The outbreak is far from over, and a new batch of headlines announcing an uptick in cases could easily send stocks in the opposite direction tomorrow. But today's trading action should serve as a reminder that the weakness is tied to the outbreak, and buy-and-hold investors are best served by riding out the crisis and the headlines without making a move.
Just buckle up and be prepared for turbulence.