What happened

Airline shares are taking flight throughout the Americas on improving optimism that the worst of the COVID-19 pandemic travel slump is now behind us. The U.S. airlines are all up between 5% and 15% apiece on Monday, but those gains pale in comparison to how New York-traded Latin American airlines are trading.

Shares of two of Brazil's largest airlines, Azul (NYSE:AZUL) and Gol Linhas Aereas Inteligentes (NYSE:GOL), traded up 20% apiece on Monday, as did shares of bankrupt Latam Airlines Group (NYSE: LTM) of Chile.

So what

Airlines around the globe have been hit hard by the pandemic, which has reduced travel demand to near-zero and starved companies of revenue. Two of Latin America's largest carriers, Latam and Colombia's Avianca Holdings, have flown into bankruptcy. And investors fled shares of Gol and Azul fearful that those airlines would end up there as well.

Airplanes parked at an airport.

Image source: Getty Images.

U.S. airlines in recent weeks have rallied on local communities beginning to reopen, and Brazil is now following suit. Tourist hotbed Rio de Janeiro has authorized reopening bars, restaurants, shopping malls, and soccer stadiums to try to get business back to normal.

The airlines are also making progress in getting cost concessions from labor to help them manage through the crisis.

Local Brazilian media reports that Gol employees have approved a package of unpaid leave and layoffs with rehiring priority, as well as compulsory hours and wage reduction programs. The National Aeronauts Union, which represents workers at Gol and elsewhere, according to the report, sees the Gol agreement as a model for other airlines including the Brazilian units of Azul and Latam.

Now what

Brazil's attempts to reopen have come under fire from critics who fear COVID-19 is not yet contained in the country, and reports that the government has begun to restrict the release of COVID-related health data is worrisome.

The good news is, thanks to the negotiations with union leadership, the airlines that are not yet in bankruptcy will be better positioned to survive if a second wave of the pandemic does strike. Even after the rallies, shares of Gol and Azul are still down 47% and 62% year to date, respectively, and investors are likely buying into the improving odds that equity holders will not be wiped out completely.

For Latam holders, it is very likely too late to retain any long-term value. The company is attempting to reorganize in U.S. Bankruptcy Court in New York and hopes to emerge as a viable competitor, and any labor deal would help make that more likely.

But creditors, and not equity holders, are the most likely beneficiaries of that potential restructuring. Equity holders are last in line in a bankruptcy, and by the time creditors are paid off, I see little hope that current Latam shareholders will get a piece of the restructured company.

Shares of companies in bankruptcy tend to be volatile, and traders will attempt to profit from those swings in the months to come. But for long-term investors, there is no reason to even consider Latam.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.