Please ensure Javascript is enabled for purposes of website accessibility

Why Airline Shares Are Rallying Today

By Lou Whiteman - Aug 5, 2020 at 3:23PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Will Congress come to the rescue again?

What happened

Airline stocks took off on Wednesday on a report that additional payroll support could be included as part of a second government stimulus plan. Airlines and their unions had been lobbying for the provision, but it seemed like a long shot as recently as a few weeks ago.

Shares of American Airlines Group (AAL -0.53%) led the sector higher, up 8.5% as of 3 p.m. EDT, with shares of United Airlines Holdings (UAL -0.05%), Southwest Airlines (LUV -0.79%), Spirit Airlines (SAVE 0.37%), and Hawaiian Holdings (HA 2.66%) all up 4% or more, and JetBlue Airways (JBLU 1.36%), Alaska Air Group (ALK -0.81%), and Delta Air Lines (DAL 0.09%) up 3% apiece.

So what

The airline industry has been hit hard by the COVID-19 pandemic, but the companies so far have been able to avoid bankruptcy in part thanks to a $50 billion lifeline for the industry included in the CARES Act. About half of that funding was in the form of payroll support, and was conditioned on the airlines agreeing to hold off on layoffs through Sept. 30.

A plane landing at night.

Image source: Getty Images.

The funding, and the prohibition on layoffs, is soon coming to an end, but airline unions have been lobbying lawmakers to extend the protections in order to avoid upward of 30% of total airline workers losing their jobs.

Airline executives, including Southwest CEO Gary Kelly, have lent their voices to the effort in recent days. But given we are nearing an election and the original airline bailout plan was not popular, it was uncertain whether the effort would gain much support in Washington.

On Wednesday, Reuters reported that a group of 16 Senate Republicans have backed extending $25 billion in payroll assistance to airlines "to avoid furloughs" and support workers. Presumably, the new funding would come with similar stipulations as the CARES Act and would require airlines to keep employees on the payroll until the cash runs out.

Now what

An extension of the payroll support would provide extra cash to struggling airlines, and would allow the industry to at least put off making tough decisions about their workforces. The airlines have used the funding to fly flights that might not be financially viable in more normal times, providing much-needed revenue.

The program also gives the airlines more flexibility: With workers on the payroll the industry can quickly add flights if demand recovers quicker than expected.

Alas, this legislation, even if it is included in the final stimulus plan, would at best likely only kick those tough decisions down the road. Airlines are expecting it to take until 2022, if not longer, for travel volumes to return to pre-pandemic levels, and at some point layoffs or buyouts seem inevitable.

But that's all in the future. For now the airlines are living day-to-day trying to fly through this crisis. And any additional help they can get from the government is going to be met warmly by investors.

Lou Whiteman owns shares of Delta Air Lines and Spirit Airlines. The Motley Fool owns shares of and recommends Spirit Airlines. The Motley Fool recommends Alaska Air Group, Delta Air Lines, Hawaiian Holdings, JetBlue Airways, and Southwest Airlines. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
ALK
$46.23 (-0.81%) $0.38
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
JBLU
$8.95 (1.36%) $0.12
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
LUV
$38.97 (-0.79%) $0.31
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$33.96 (0.09%) $0.03
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
SAVE
$24.68 (0.37%) $0.09
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
UAL
$38.67 (-0.05%) $0.02
Hawaiian Holdings, Inc. Stock Quote
Hawaiian Holdings, Inc.
HA
$16.59 (2.66%) $0.43
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL
$14.99 (-0.53%) $0.08

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.