Market participants regained their confidence in stocks on Friday, leading to modest gains for major market benchmarks. By the end of the day, indexes had clawed back only a fraction of their losses from Thursday, and there's still a lot of nervousness about recent upticks in coronavirus cases in major metropolitan areas like Houston and Phoenix. Nevertheless, investors hope that the worst of the pandemic is over and that economic activity can return to normal conditions. The Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) rose around 1% to 2%.

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Data source: Yahoo! Finance.

Airline stocks have been among the most volatile in the market lately, and several key companies in the sector saw their shares make big moves today. That was especially good news for American Airlines Group (NASDAQ:AAL), Southwest Airlines (NYSE:LUV), and Delta Air Lines (NYSE:DAL), as each of those companies saw their shares fly higher on promising news about their operations.

An end to negative cash flow?

The biggest problem airlines have faced lately is the mismatch between their fixed expenses and their revenue. Dramatic traffic declines have slashed the amount of money airlines have coming in, and refunds and credits on cancelled travel has posed an even larger financial threat.

Plane with American Airlines logo and designs on it, taxiing on an airport ramp.

Image source: American Airlines.

In that light, today's news from American was positive, sending its stock up 16%. Although its revenue for the second quarter could plunge 90% from year-ago levels, American has seen its rate of negative cash flow slow to about $40 million per day. That's not a pretty number, but it's far better than the $100 million per day in cash that American was going through during the month of April. Delta has seen similarly favorable trends in its rate of cash burn as well.

For American, $40 million a day works out to roughly $1.2 billion per month, and with $11 billion in expected liquidity at the end of June, American seems to be on a trend toward ensuring it can survive the current crisis if conditions don't deteriorate. That's something investors are starting to see across the industry, and it bodes well for those counting on a rebound for airline stocks overall.

A vote of confidence for Southwest

Shares of Southwest also participated in the airline rally, rising 9%. The Dallas-based airline got positive comments from stock analysts in the form of an upgrade and higher price target.

Analysts at Credit Suisse increased their rating on Southwest from neutral to outperform and raised their stock price target by $10 per share to $45. The analysts believe that Southwest is well-positioned to benefit from an expected rise in the number of passengers traveling for leisure, and they singled out the company for its ability to sustain a favorable debt rating despite the pressures on the industry.

Unlike Delta and American, Southwest has a relatively small exposure to international travel markets. That's been an advantage, because even as certain parts of the U.S. relax their coronavirus protocols, most foreign countries have been more vigilant about keeping borders closed, especially to the U.S. and other areas with high infection rates.

What to do

It's hard to know whether buying airline stocks right now is the best move. There's sure to be a lot more turbulence in the months ahead, as investors wait to see if travelers return to the skies. As long as hard facts don't dash hopes for a return to more normal conditions, airline stocks have the capacity to keep regaining the ground they lost during the coronavirus bear market.

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.