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Why Airline Stocks Are Sinking (Again) on Thursday

By Rich Smith - Jul 16, 2020 at 12:38PM

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What went up just came back down.

What happened

Investors curbed their enthusiasm over airline stocks Thursday, after Wednesday's coronavirus vaccine-inspired monster run-up in such shares.

In trading yesterday, shares of United Airlines (UAL 2.19%) soared more than 14% and American Airlines (AAL 1.90%) gained 16%. Discount airline Spirit (SAVE 0.61%) notched a 12% gain, and even Delta Air Lines (DAL 2.46%) -- burdened by bad news earlier in the week -- closed 9.5% higher.

Today, though, what went up is coming back down.

Two airplanes flying in opposite directions

Image source: Getty Images.

So what

In early trading Thursday, circa 11:11 a.m. EDT, United is giving back 3.9% and Spirit 4.7%. Delta's down 5.1%, and American stock -- the biggest winner yesterday -- is leading the industry lower with a 5.9% loss.

Why? In part at least (perhaps a large part), I see this as investors locking in profits in a topsy-turvy market for airline stocks. Few industries have been as volatile as airlines throughout the coronavirus pandemic, as investors scatter in fear of bankruptcy concerns one day, only to coalesce and buy back shares hand over fist on any news that might suggest a "return to normal" is imminent.

Yesterday was one of those latter kinds of days, with vaccine maker Moderna announcing optimistic results from trials of its new coronavirus vaccine. The observation that "100% of evaluated participants" in the trial produced "neutralizing antibodies" in response to Moderna's vaccine sounded especially propitious.

Now what

Today, however, we're moving in the opposite direction. For one thing, investors may be selling shares to lock in yesterday's windfall profits, on the (historically sound) assumption that the stocks will get cheaper again, allowing them a chance to buy back in at a later date.

At the same time, there's a bit of bad news weighing on airline shares today, with The Wall Street Journal, for example, highlighting airline industry layoffs in an above-the-fold column today -- 25,000 job cuts just announced at American for example, and another 36,000 job losses in the offing at United, all because "air-travel demand falls again amid climbing coronavirus numbers." Meanwhile, Johns Hopkins University is reporting that global COVID-19 infections just hit a record for a one-day increase.  

With news like that, I can't really blame investors for ensuring their yesterday profits don't disappear -- or fault their logic in thinking there will be more chances to buy back airline shares at lower prices, as bad news continues to follow good, day in and day out, ad infinitum.  

Such is the life of an airline stocks investor.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Spirit Airlines. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$33.75 (2.46%) $0.81
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
$24.65 (0.61%) $0.15
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$38.65 (2.19%) $0.83
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$15.02 (1.90%) $0.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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