What happened
It's been a tough year for the airline industry, with the COVID-19 pandemic decimating travel demand and causing carriers to scramble to cut costs. Airline stocks were hit hard early in the crisis, and in the months since have been moving up and down based on developments in the fight to put COVID-19 behind us.
August brought a wave of mostly optimistic headlines about the effort to find a COVID-19 vaccine as well as some positive talk from Washington about additional financial support for the airlines, and the stocks moved higher as a result.
Leading the way for the month was Delta Air Lines (DAL 1.02%), up 23.5% according to data provided by S&P Global Market Intelligence. Southwest Airlines (LUV -7.87%) and American Airlines Group (AAL -1.01%) were up 21.7% and 17.4%, respectively.
So what
The U.S. airline industry saw second-quarter revenue decline by nearly 80% from a year prior, and the traffic is unlikely to come back until there is a COVID-19 vaccine. Airline stocks gained in August on headlines concerning the development of a new quick COVID-19 test that could help reassure uncertain flyers, as well as milestones in vaccine development that suggest we could have a resolution sooner than initially feared.
Image source: Getty Images.
In the meantime, there are some indications coming out of Washington that lawmakers are open to including the airlines in a second round of COVID-19 stimulus if it means avoiding layoffs. The airlines are bleeding cash during the pandemic, and any additional financial assistance provided by the government would lengthen their runways before they face liquidity issues.
The airlines also figure to benefit from a loosening of international travel restrictions, though even with government approval, few are flying internationally at this time.
Now what
August was a good month, but the stocks are still down between 30% and 55% year to date. Which seems appropriate, given the challenges the industry still faces.
A vaccine will arrive eventually, and when it does, I am optimistic travel will begin to return. But in the meantime, expect the industry to get smaller. American has warned it will have to cut 40,000 jobs this fall if there is no additional government assistance, and Delta said it will have to let go of up to 1,941 pilots. Southwest is hopeful of avoiding layoffs, but only because 25% of its workforce has agreed to take extended leave or buyouts.
For investors looking to take advantage of an eventual recovery, be warned you are likely in for a long wait. Southwest and Delta are among the safer airline stocks for those interested in buying in, while American has debt issues that make it riskier to own at this time.
