What happened

Airline stocks are underperforming the broader markets on Wednesday despite some positive analyst commentary, with investors focused instead on worrisome data about the continuing spread of the COVID-19 pandemic.

Spirit Airlines (NYSE:SAVE) is leading the group lower as of 1 p.m. EDT, down 5%, while shares of United Airlines Holdings (NASDAQ:UAL), American Airlines Group (NASDAQ:AAL), and Delta Air Lines (NYSE:DAL) were all down more than 2%.

Southwest Airlines (NYSE:LUV) was the best performing U.S. airline stock as of mid-day following the release of some optimistic financial data.

So what

Airline stocks have been circling the airport in recent weeks, with investors torn between positive signs that traffic is slowly recovering and ominous headlines reminding that the pandemic is far from resolved.

The industry has raised tens of billions in fresh capital and has ample liquidity to survive into the fall, but needs travel demand, and revenue, to return in the months to come to avoid an eventual liquidity crisis.

Planes parked at an airport.

Image source: Getty Images.

On Wednesday, The Washington Post published an analysis saying that nine states, including tourism hotbeds Florida and Texas, either posted new single-day highs or set records for seven-day new case averages.

It's unclear whether the growing case numbers will cause states to rethink plans to reopen. Florida Gov. Ron DeSantis said Tuesday his state will not shut down again despite posting a record high in new cases. But if there is one thing we've learned this year it is that a pandemic is very hard to predict, and if the case numbers keep growing local officials might not have a choice.

The COVID-19 worries are outweighing positive commentary by Seaport Global analyst Daniel McKenzie, who on Wednesday initiated American, Southwest, Spirit, United, and JetBlue Airways as buys.

Southwest is holding up better than most thanks to an investor update that indicates the airline is well prepared to deal with an extended downturn. On Wednesday, the company said it has enough cash on hand to survive two years at its current burn rate of about $20 million per day.

Now what

Airline stocks have become a good measure to use to gauge the day-to-day market sentiment about the spread of the pandemic. For months now, the airlines have tended to move in groups, based more on the prospects for future travel than on individual company news.

That's likely to remain the case until we have more clarity about what will become of the pandemic, but Southwest on Wednesday did provide a reminder that not all balance sheets are created equal. Shares of Southwest, though down 32% for the year, have held up better than most airline stocks. The company's financial update justifies that performance.

For now, investors are best served by focusing on Southwest and other airline stocks that have the best chance of surviving whatever lies ahead for the industry. The one thing that seems certain right now is there will be more turbulence up ahead.

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.