What happened

Airlines continue to add flights despite a growing number of COVID-19 cases, suggesting that they continue to see pent-up demand for travel. That, coupled with some positive news concerning the development of a COVID-19 vaccine, was enough to point airline shares higher at the open on Wednesday.

Shares of United Airlines Holdings (NASDAQ:UAL) jumped 10% at the open, while shares of American Airlines Group (NASDAQ:AAL) and Spirit Airlines (NYSE:SAVE) opened up 9% apiece and Delta Air Lines (NYSE:DAL) and JetBlue Airways (NASDAQ:JBLU) were each up 6% apiece.

The stocks all gave back some of their gains as the morning went on, but investors on Wednesday are looking for reasons to feel positive about what has been a beaten-down sector due to the pandemic.

A passenger wearing a mask on a flight.

Image source: Getty Images.

So what

Tuesday marked the end of the second quarter, and airlines will be happy to put that period behind them. The industry is expected to report revenue down 90% in the second quarter due to pandemic-related travel weakness.

The issues didn't end when the quarter changed, but traffic numbers are at least trending in the right direction. On Wednesday, United said it would add nearly 25,000 domestic and international flights to its August schedule as "customers are slowly returning to flying."

More than 600,000 passengers passed through airport security checkpoints on June 29, according to the Transportation Security Administration, the first day that number exceeded 25% of year-ago levels since March 19.

United's expansion is focused on leisure destinations, trying to capitalize on pent-up demand for summer vacations. And the growth, while substantial, still only restores a small part of the airline's overall schedule from a year ago. United said it would fly about 40% of its August 2019 schedule this coming August.

The growth comes despite new warnings that COVID-19 is spreading in major tourism hotspots including Florida, Texas, and California, suggesting that certain states might be forced to implement new shutdowns. But the markets got good news on the vaccine front on Wednesday as well, as Pfizer's vaccine candidate showed progress in trials suggesting it was safe for use and facilitated the production of antibodies to fight the virus.

Delta investors also got a fresh reminder of the risks that remain for airline investors. Delta partner Grupo Aeromexico SAB de CV filed for bankruptcy late Tuesday, likely wiping out Delta's 49% stake in the Mexican carrier.

Now what

This is a fragile moment for airline stocks, with the shares moving up and down on positive travel datapoints and worrying new case numbers. The pandemic is not yet over, and until it is, it is impossible to know how the third quarter and the rest of 2020 will shape up for the sector.

The airlines have raised nearly $50 billion in private funding to go along with a similar amount of government assistance, and should have the wherewithal to survive an extended downturn. But unless traffic spikes dramatically higher in the months to come, expect the industry to reduce head counts and prepare for a multi-year recovery.

I think it is safe to invest in airlines, but only as a small part of a diverse portfolio. And investors would be wise to stick to top operators with the best chance of surviving if the second wave of the pandemic ends up being as bad as, or worse than, the first.