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Why Shares of Airlines Are Soaring Today

By Lou Whiteman - Updated Mar 25, 2020 at 1:51PM

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The industry's $50 billion bailout appears within reach.

What happened

Airline stocks were gaining altitude on Wednesday after the White House and Congress overnight announced a deal on a $2 trillion stimulus package. The deal includes $50 billion for U.S. passenger and cargo airlines, which should help the companies weather the severe travel slowdown caused by the COVID-19 coronavirus pandemic.

Shares of Hawaiian Holdings (HA 6.12%) and Spirit Airlines (SAVE 2.90%) were each up more than 30% as of 1 p.m. EDT today, while shares of Delta Air Lines (DAL 5.55%), American Airlines Group (AAL 7.09%), United Airlines Holdings (UAL 7.54%), and JetBlue Airways (JBLU 5.77%) were all up more than 15%, and both Alaska Air Group (ALK 5.06%) and Southwest Airlines (LUV 4.98%) were up more than 8%.

So what

Few industries have been hit harder by the pandemic than the airlines, with travel demand disappearing overnight and ticket sales expected to remain slow through the summer at least. Absent assistance, the companies are facing tough decisions as revenue has plummeted. Delta, for example, expects 2020 second-quarter revenue to be down 80% year over year, and it is currently burning through $350 million per week.

Even the healthiest U.S. carriers have lost more than 40% of their value over the last month as investors braced for potential bankruptcies or failures. 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.

Planes parked at a busy airport.

Image source: Getty Images.

The airlines got their wish Wednesday when lawmakers reached a tentative agreement on a stimulus package that would provide help to the industry. The bailout does come with some stipulations, but they are much more manageable than some proposals floated in recent weeks, including talk that the government should take major equity stakes in the carriers.

Any company receiving government loans as part of the stimulus bill would be subject to a ban on stock buybacks through the term of the loan, plus potentially additional time up to a year. It would also be forced to limit executive bonuses and take steps to protect workers.

The terms would place limitations on the companies in the near term but would not prevent them from tapping equity markets and other sources of private capital in the future.

Now what

It's worth noting that as of this writing, the stimulus plan still had not been signed into law. It appears likely to be done by end of day Wednesday, or Thursday morning at the latest, but it is dangerous to assume anything, especially where Washington is concerned.

Even with the bailout package secured, airlines would still face a difficult path. The pandemic could easily send the U.S. economy into an extended recession and keep lucrative business travelers sidelined for months. But their stocks, even after factoring in Wednesday's rally, remain down between 24% and 56% year to date. A recession is priced in, and for those with the risk tolerance to handle the uncertainty ahead, now is the time to selectively buy into airlines.

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Stocks Mentioned

Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
ALK
$41.92 (5.06%) $2.02
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
JBLU
$8.62 (5.77%) $0.47
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$31.20 (5.55%) $1.64
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
SAVE
$24.52 (2.90%) $0.69
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
UAL
$38.51 (7.54%) $2.70
Hawaiian Holdings, Inc. Stock Quote
Hawaiian Holdings, Inc.
HA
$15.43 (6.12%) $0.89
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL
$13.90 (7.09%) $0.92
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
LUV
$37.73 (4.98%) $1.79

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

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