What happened

Airline shares were under pressure on Monday as investors grappled with a fresh round of headlines concerning COVID-19 cases spiking. We're moving into the final stages of the summer vacation season with travel demand still anemic, and without much reason to believe it will get better any time soon.

Shares of American Airlines Group (AAL -2.06%) led the airlines lower, down 5% as of 3:30 p.m. EDT, while shares of United Airlines Holdings (UAL 0.17%), Delta Air Lines (DAL 0.43%)Southwest Airlines (LUV -0.91%), Alaska Air Group (ALK -0.99%), JetBlue Airways (JBLU -18.77%), and Spirit Airlines (SAVE -3.07%) were also among the hardest hit in what was a down day for the entire sector.

So what

It's been a long, miserable summer for airlines. The pandemic has cut travel demand, leading to second-quarter year-over-year revenue declines of more than 80%.

Monday actually brought a glimmer of good news in terms of demand, as more than 862,000 travelers passed through Transportation Security Administration airport checkpoints on Sunday. That's the highest single-day total since mid-March, and a substantial improvement over the 87,534 people screened back on April 14.

A plane lands at night.

Image source: Getty Images.

But while a day with 862,000 travelers is an improvement, it is still a far cry from the 2.5 million travelers to pass through security on the same day in 2019. That's a pretty accurate summary of where things stand with the airlines today: Business conditions have improved compared to the mid-spring lows, but we are a long way from normal.

On some recent Mondays, the TSA data has been enough to move airlines higher. But investors also had some worrisome reports out of Europe to deal with today, and were in no mood to buy into the sector.

European airline stocks fell on Monday after Germany moved to impose a two-week quarantine on travelers coming in from Spain, joining the United Kingdom in taking the step. The moves are sparking fears of a virus resurgence in Europe, which just weeks ago looked to have COVID-19 somewhat under control.

Combine Europe's difficulties in containing the virus with an Associated Press story on Monday indicating that U.S. consumers don't feel safe flying, and it seems unlikely we will see a full travel recovery until there is a widespread vaccine.

Now what

I've been saying for a while now I expect airline stocks to trade largely based on the broader market sentiment concerning COVID-19 and hopes for a vaccine, rather than on company-specific news. The airlines all have a decent amount of cash on hand to try to ride out the storm, but none of the stocks are likely to soar substantially higher until late 2021 at the earliest as we await a return to normalcy post-pandemic.

For those with a long enough time horizon, I think it is safe to buy into airlines. But it is best to stick to specific companies that have the strongest balance sheets or the most potential upside. In the near term, there isn't much reason to expect airlines to bounce back, and we could have a lot of down days up ahead as we continue to confront the difficult realities of the pandemic.