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Why Airline Stocks Are Soaring Today

By Lou Whiteman – Aug 10, 2020 at 1:38PM

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Weekend travel data offers a glimmer of hope for the beleaguered industry.

What happened

Americans returned to the skies this weekend, and that's causing airline stocks to take off.

Shares of American Airlines Group (AAL -1.71%), Delta Air Lines (DAL -1.34%), United Airlines Holdings (UAL -1.16%), and Alaska Air Group (ALK 0.03%) all traded up more than 6% as of 12:30 EDT Monday, with shares of JetBlue Airways (JBLU -0.30%), Southwest Airlines (LUV -2.53%), Spirit Airlines (SAVE -5.99%), and Hawaiian Holdings (HA -1.50%) all up 4% or more.

Allegiant Travel (ALGT -2.29%) is the laggard in the sector today, but at up 3.6%, it is still easily outperforming the broader markets.

An airplane taking off

Image source: Getty Images.

So what

The airlines have been dealing with meager demand since the start of the COVID-19 pandemic. Second-quarter revenue for the sector came in down 80% or more year over year, and with new cases spiking in certain parts of the U.S., there isn't much clarity on when demand might return.

Given the uncertainty, investors are keeping a close eye on day-to-day demand in hopes of spotting the early stages of a recovery. Those watching got good news on Monday morning when the Transportation Security Administration reported that 831,789 travelers were screened at airports on Sunday, the highest total since March 17.

That's still a year-over-year decline of nearly 70%, but 831,000 daily passengers is a huge rebound from the low of 87,534 people who flew on April 14. As importantly, the jump suggests that summer vacationers have not been scared off by headlines warning that new cases are increasing.

Now what

At best we are in the early stages of what is likely to be a slow, painful recovery. The next few months will present a lot of challenges for the industry.

Airlines have avoided layoffs as a condition of the $25 billion in government assistance the industry received as part of the CARES Act. That funding, and the prohibition on layoffs, is set to expire on Sept. 30. Absent an extension, we are in for a period of sharp cuts as airlines adjust their networks to account for the end of summer vacation season and a decline in government funds.

ALGT Chart

Airline data by YCharts

The stocks are both well off their lows and still down for the year. For investors who want to buy in and hope for the best, I do believe there are some airline stocks that offer attractive risk-reward balance right now. Just be warned a recovery is going to take a long time, and no one day's travel data is going to provide an all-clear signal.

Lou Whiteman owns shares of Delta Air Lines and Spirit Airlines. The Motley Fool owns shares of 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.

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Stocks Mentioned

Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
$39.15 (0.03%) $0.01
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
$6.63 (-0.30%) $0.02
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
$30.84 (-2.53%) $0.80
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$28.06 (-1.34%) $0.38
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
$18.82 (-5.99%) $-1.20
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$32.53 (-1.16%) $0.38
Hawaiian Holdings, Inc. Stock Quote
Hawaiian Holdings, Inc.
$13.15 (-1.50%) $0.20
Allegiant Travel Company Stock Quote
Allegiant Travel Company
$72.98 (-2.29%) $-1.71
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$12.04 (-1.71%) $0.21

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

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