What happened

Airline stocks surged higher on Friday following positive comments from American Airlines Group (NASDAQ:AAL) concerning traffic trends and cash bleed. The sector has been volatile of late, moving up and down based on sentiment about the prospects of a second wave of coronavirus infections and an economic recovery. But Friday was a "risk-on" day.

Shares of American opened up 20% and traded up 15% as of 10 a.m. EDT, while shares of Spirit Airlines (NYSE:SAVE), United Airlines Holdings (NASDAQ:UAL), and Delta Air Lines (NYSE:DAL) were all up 12% or more. Rounding out the sector, Southwest Airlines (NYSE:LUV), JetBlue Airways (NASDAQ:JBLU), Allegiant Travel (NASDAQ:ALGT), and Alaska Air Group (NYSE:ALK) were all up at least 10%, and Hawaiian Holdings (NASDAQ:HA) was up more than 8%.

A plane taking off.

Image source: Getty Images.

So what

Airline stocks are in a bit of a holding pattern right now, caught between fears that a second wave of the COVID-19 pandemic could force at least some of the companies into bankruptcy and optimism that the country is slowly reopening and that more normalized travel patterns will begin to resume.

There's evidence to suggest both scenarios are true. COVID-19 cases are on the rise in key states including Texas, Florida, and California, a potentially ominous sign we are moving too fast in reopening. But reopening we are, with the Transportation Security Administration on Thursday screening more than a half million people at airports in a single day for the first time since March 21.

Given the uncertainty, the stocks have tended to trade up or down based on the most recent datapoint. Friday morning's datapoint was positive, with American in a securities filing saying it has seen positive net bookings trends for both near-term and far-out travel since mid-May.

Even if the recovery is slow, American said it believes it can hit a zero-cash-burn rate by the end of 2020 either via improving demand or from cost cuts. American is considered the most vulnerable of the major airlines due to its industry-high debt load, so if American is making progress extending its runway, that's likely good news for holders of better-positioned companies.

Now what

We are still a long way from normal. In the filing, American said it expects second-quarter revenue to be down 90% year over year, on a 75% reduction in capacity. And it still expects to burn through about $40 million per day in June.

The airlines have the cash in the bank to survive losses for now, and American said it expects a CARES Act loan of about $4.75 billion to be funded this month to add to its liquidity. The question that remains, and which is not answerable, is what will become of the pandemic, and what might a second wave do to travel demand this summer and into the fall.

Investors would be wise to try to ignore the day-to-day volatility and focus on the airlines that are best-positioned to weather a long, slow recovery.

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.