What happened

It's a "risk-on" day on Wall Street Friday, as after a few days of selling, investors are taking a glass-half-full view of where things stand with the COVID-19 pandemic. That's helping to give a lift to airline shares, one of the sectors most impacted by the pandemic.

Spirit Airlines (SAVE 0.36%) is leading the sector higher on Friday, up 9% as of noon EDT, while shares of American Airlines Group (AAL 0.57%), United Airlines Holdings (UAL 0.52%), and JetBlue Airways (JBLU 0.40%) are all up more than 5% apiece and shares of other carriers including Southwest Airlines (LUV 0.97%) and Delta Air Lines (DAL -2.27%) are not far behind.

So what

Airline stocks have been volatile since the pandemic began. The stocks bottomed out in March on concerns that a severe drop off in travel demand would lead to a round of bankruptcies in the sector, but have recovered somewhat in the months since as travel has slowly returned.

In recent weeks the airlines have traded mostly on broader market sentiment about progress in fighting the pandemic, and indications about what the economy will look like once the outbreak is behind us. Friday brought good news in the fight against the COVID-19 virus, with Gilead Sciences presenting data indicating its remdesivir treatment reduced the risk of death.

A plane taking off.

Image source: Getty Images.

There was company-specific news for airline investors to consider on Friday as well. United reached a deal with its pilots union to offer early retirements and voluntary furloughs, potentially reducing the need for the airline to do massive involuntary layoffs later this Fall. American, meanwhile, is said to be reconsidering at least part of its Boeing 737 Max order as it rethinks its capacity requirements in the years to come.

Spirit might have gotten a lift from commentary from Cowen analyst Helane Becker that low-cost carriers are better suited to profit in this environment. With corporate and international travel expected to be low through 2020, at least the airlines are focused on stimulating domestic leisure demand via fare sales.

Now what

Airline stocks are in an odd position right now. With the industry raising nearly $50 billion in liquidity to go along with a similar amount of government support, there is no carrier that is a near-term risk of bankruptcy. However, with a full recovery likely to take years, there isn't a lot of reason for investors to get excited about buying in.

For now, expect airline stocks to continue to trade along with broader markets. As summer vacation season ends and government prohibitions against layoffs expire this fall, expect the entire industry to shrink dramatically in the months to come. The airlines are likely to be focused on cash preservation, and not expansion, through 2021 and earnings will be muted at best.

For those interested in buying in and waiting out a recovery, it is best to stick to the top operators in the industry instead of adding exposure to a wider basket of stocks including some of the more vulnerable airlines.