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Why Shares of Airlines Are Soaring Today

By Lou Whiteman - Updated Apr 9, 2020 at 1:27PM

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The industry gets a double shot of good news concerning the stimulus package and reopening the economy.

What happened

Airline stocks are gaining altitude again on Thursday, after Treasury Secretary Steven Mnuchin said assistance for the industry is a top priority, and companies could be hearing from his department by the weekend.

Shares of United Airlines Holdings (UAL 1.73%) led the way, up 17.6% as of 11 a.m. EDT; shares of American Airlines Group (AAL 1.73%), Spirit Airlines (SAVE -0.45%), Hawaiian Holdings (HA 1.81%), and Alaska Air Group (ALK 2.40%) were all up more than 13%. JetBlue Airways (JBLU 2.12%) is up more than 9%.

Delta Air Lines (DAL 1.59%) and Southwest Airlines (LUV 1.26%), arguably the two strongest companies in the sector, were up 6.8% and 5.2%, respectively.

So what

The airlines have been among the sectors hardest-hit by the COVID-19 coronavirus pandemic, with demand for air travel all but evaporating and revenue plummeting. The companies have responded by cutting flights and grounding planes, but with second-quarter revenue expected to decline by as much as 90% year over year, arguably no amount of cuts could be enough to sustain the industry.

The industry is set to receive up to $50 billion in loans and grants. as part of the $2 trillion economic stimulus package passed by Congress in late March. But there are still questions about how the aid will be distributed, what will be required in return, and how long it will take to hit airline balance sheets.

An airport security screening area,  completely empty

Image source: Getty Images.

Secretary Mnuchin, appearing on CNBC Thursday morning, said his department is "working around the clock" analyzing airline balance sheets and aid requests, with a plan to update the president on Thursday afternoon and get preliminary information out to the airlines by the weekend.

"It is our objective that airlines will have the liquidity to keep their workers in place," Mnuchin said.

The size of the Thursday jumps correlate pretty well with how desperately the airlines need the assistance, with the airlines perceived to be weaker gaining more than those perceived as having more of a cash runway.

Now what

The government assistance will help, but as said above, there is no amount of cash that will make the airlines viable indefinitely if traffic doesn't return. The sector got good news on that front too from the Mnuchin interview, with the secretary saying the White House could begin to restart the economy as soon as May if there's ample evidence the worst of the pandemic is behind us.

That's still far from certain, and investors need to be mindful we are still in the middle of a dangerous situation that could take a turn for the worse at any moment. But with each passing day it's beginning to appear more likely the airlines will be able to survive this crisis. And if they do, the stocks -- after falling 30% or more in March -- are likely undervalued.

Given the risk, I'd recommend keeping positions small and focusing only on top operators, but this is an interesting time for investors to look hard at the airline sector.

Lou Whiteman owns shares of Delta Air Lines and Spirit Airlines. The Motley Fool owns shares of and recommends Delta Air Lines, Southwest Airlines, and Spirit Airlines. The Motley Fool recommends Alaska Air Group, Hawaiian Holdings, and JetBlue Airways. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
$47.34 (2.40%) $1.11
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
$9.14 (2.12%) $0.19
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
$39.46 (1.26%) $0.49
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$34.50 (1.59%) $0.54
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
$24.57 (-0.45%) $0.11
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$39.34 (1.73%) $0.67
Hawaiian Holdings, Inc. Stock Quote
Hawaiian Holdings, Inc.
$16.89 (1.81%) $0.30
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$15.25 (1.73%) $0.26

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

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