What happened

Airline investors remain skittish, worried that a second wave of the COVID-19 pandemic could wipe out the gains the sector has made since early April and send travel demand numbers tumbling again. The stocks sold off on Friday afternoon after Apple provided fresh reason for concern about the spread of the outbreak.

Shares of United Airlines Holdings (NASDAQ:UAL) were down 7.5% as of 2 p.m. EDT, while shares of Allegiant Travel (NASDAQ:ALGT), Spirit Airlines (NYSE:SAVE), and JetBlue Airways (NASDAQ:JBLU) were all down more than 5%.

The entire industry was under pressure, with shares of Delta Air Lines (NYSE:DAL), American Airlines Group (NASDAQ:AAL), Southwest Airlines (NYSE:LUV), Hawaiian Holdings (NASDAQ:HA), and Alaska Air Group (NYSE:ALK) all down 4%.

So what

Airline stocks are well off their COVID-19 lows, encouraged by airline efforts to rebuild parts of their schedules for late summer travel. The industry has raised tens of billions in new funding to help survive the pandemic, but need travel demand, and with it revenue, to rebound in the quarters to come to avoid liquidity issues.

A traveler walking through an airport with a mask on.

Image source: Getty Images.

The stocks in recent weeks have traded up or down along with broader market sentiment about how soon the pandemic will be behind us, or whether there will be a second wave. On Friday Apple sounded the alarm about growing case numbers in key states, causing investors to head for the exits.

Apple said it would temporarily shut down retail locations in Florida, Arizona, North Carolina, and South Carolina due to a spike in new COVID-19 cases in those areas. Further closures are possible, as new cases are also on the rise in Texas and California among other states.

The areas impacted are of particular significance to the airlines because for the most part cases are spiking in states that are popular domestic summer vacation destinations. The recent rebound in travel demand has been primarily for domestic leisure travel. If states like Florida have to shut down, a lot of those bookings are going to turn into cancellations.

The airlines continue to brace for the worse. American is reportedly seeking to line up $2 billion in fresh funding via a junk bond sale.

Now what

It seems increasingly likely the pandemic is going to be with us for a while. That's not good news for airline investors, and the stocks are trading off accordingly.

The good news is the airlines are making steady progress bringing down costs and lengthening their runways. This week alone, Southwest said it has enough cash to last two years at current burn rates, while Delta expressed confidence it can reduce its cash burn to zero by early 2021.

These are scary times to be an airline investor, and those interested in buying in should brace themselves for months of turbulence up ahead. I continue to believe that the markets are underestimating the amount of cash the entire industry has available to it to help the companies survive even an extended downturn, but given the risks and the uncertainty would advise sticking to top names with the best balance sheets if you want to buy in.