What happened

Airline shares got a lift on Thursday after U.S. health officials approved a 15-minute COVID-19 test from Abbott Laboratories. Airlines have suffered due to the pandemic's impact on travel demand, and in recent weeks any potentially positive development in the fight against the virus has caused shares to rally.

Shares of American Airlines Group (AAL 0.14%) led the sector higher on Thursday, peaking 11.5% higher, while shares of United Airlines Holdings (UAL -0.06%) were up as high as 10.9%. Spirit Airlines (SAVE 3.90%) and JetBlue Airways (JBLU -2.68%) were trading up 8% apiece, and Delta Air Lines (DAL 1.25%) and Southwest Airlines (LUV 0.71%) were both up 7%.

The entire sector gave back some of those gains as the morning went on, but all of these airlines were up between 4% and 6% as of 11:30 a.m. EDT.

So what

Airlines, and their investors, have struggled in 2020, with second-quarter revenue falling by about 80% year over year across the industry due to a pandemic-related travel fall-off. There's no quick fix for what ails the industry, but a COVID-19 vaccine or at least better testing to allow for quick diagnosis would be a step in the right direction.

The stocks were up on Thursday on news that Abbott has been given the green light to sell an inexpensive COVID-19 test that returns a result in 15 minutes without sending the sample to a lab. The company intends to manufacture 50 million of the tests per month by October, which could make it easier for schools and workplaces to safely reopen and for economic activity to normalize.

An airplane taking off.

Image source: Getty Images.

It's easy to see how such a test could also be employed by airlines to help reassure worried travelers. With the airlines currently expecting travel demand to remain sluggish through 2021 and into 2022, and the stocks priced accordingly, any scientific advancement that has potential to shorten the time frame is reason for investors to cheer.

Airline stocks and the broader markets also were rallying on comments from Federal Reserve Chairman Jerome Powell indicating the Fed intends to continue to do what it can to try to avoid a pandemic-related recession.

The individual shares on Thursday arguably climbed proportionately to the risks each company faces from a prolonged downturn. American has the most debt in the industry, and is among the most vulnerable of U.S. carriers, while Southwest and Delta are seen as less of a risk, and for that reason have not seen their shares fall to the extent American's stock has.

Enthusiasm for Delta shares might also be tempered on Thursday by reports that say the airline could be forced to come up with $300 million to repay a loan it backed for onetime Brazilian partner Gol Linhas Aereas Inteligentes. Prior to the pandemic, Delta had been at the forefront of an effort by U.S. airlines to create financial ties to international partners, but that effort has come back to bite the company during the downturn.

Now what

The Abbott test is undoubtedly good news and should be celebrated, but investors need to be careful not to get ahead of themselves.

Current U.S. travel volumes are down 70% year over year, but even at these low levels, giving the test to every passenger coming through the airports would soak up one-third of the number of tests Abbott hopes to produce per month. Given the other, arguably more pressing, demand for these tests from schools, hospitals, and workplaces, it's hard to imagine the development will impact air demand anytime soon.

For now, the calculus surrounding investing in the airlines has not changed. The companies all have healthy cash cushions to help survive a prolonged downturn, but there is little they can do to stimulate demand and likely are in for a turbulent ride for many quarters to come.

Given the risks, investors should focus on top companies including Southwest and Delta, and ignore the more volatile, and riskier, stocks.