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Why Shares of Airlines Are Soaring Today

By Lou Whiteman - Mar 24, 2020 at 11:41AM

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Lawmakers appear to be closing in on an economic stimulus package.

What happened

Airline stocks have been stuck on the tarmac for the last week or so, with investors waiting to find out if the industry would get the $50 billion in government assistance it has requested to help deal with the COVID-19 coronavirus travel slump. After days of uncertainty, Washington lawmakers today appeared to be finally closing in on passing an economic stimulus package, causing airline stocks to rapidly gain altitude.

Shares of Spirit Airlines (SAVE 3.22%) were up more than 38% on Tuesday morning, with shares of Delta Air Lines (DAL 3.43%), American Airlines Group (AAL 5.16%), United Airlines Holdings (UAL 5.08%), Alaska Air Group (ALK 2.76%), and JetBlue Airways (JBLU 2.17%) all up more than 20%. Shares of Southwest Airlines (LUV 1.78%) and Hawaiian Holdings (HA 8.09%) were up by double digits.

An airplane taking off.

Image source: Getty Images.

So what

Airlines have been ravaged by the pandemic, with travel demand evaporating overnight and ticket sales unlikely to recover quickly. Delta, for example, expects 2020 second-quarter revenue to be down 80% year over year, and the airline is currently burning through $350 million per week.

No industry can survive revenue declining to near-zero indefinitely, and the way airline shares have been trading over the past month implies investors were beginning to price in a growing chance there could be multiple bankruptcies in the sector. The airlines have asked the government for help, rallying employees to lobby lawmakers in hopes of winning a package of grants and loan guarantees to help weather the storm.

SAVE Chart

Airline one-month performance data through March 23 by YCharts

The prospects for a bailout have been murky in recent days. But positive headlines out of Washington that Democrats and Republicans are nearing a deal on a stimulus plan that would include aid for hard-hit industries has the markets soaring higher on Tuesday, and airlines are going along for the ride.

Now what

It is worth noting here that nothing is finalized until a bill is signed, and there is reason for skepticism even if momentum seems to be building. Even if the industry gets the assistance package it is seeking, with few or no strings attached, we could be heading into an economic slowdown or recession that will eat into results for all of 2020, if not beyond.

Assuming a deal gets done, I think there is a solid case to buy into the strongest airlines even after Tuesday's price jumps. But investors, beware: The volatility is likely far from over, and one negative headline out of Washington or related to the pandemic could cause the stocks to give up Tuesday's gains just as quickly as we got them.

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Stocks Mentioned

Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
$48.43 (2.76%) $1.30
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
$10.84 (2.17%) $0.23
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
$45.80 (1.78%) $0.80
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$42.23 (3.43%) $1.40
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
$20.50 (3.22%) $0.64
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$48.41 (5.08%) $2.34
Hawaiian Holdings, Inc. Stock Quote
Hawaiian Holdings, Inc.
$18.03 (8.09%) $1.35
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$18.13 (5.16%) $0.89

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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