Shares of most airlines were in the green on Tuesday, a day when the S&P 500 fell more than 2%, on data indicating that Americans took to the skies over the Labor Day holiday.
Two leisure-focused discounters, JetBlue Airways (JBLU -2.86%) and Spirit Airlines (SAVE -1.18%), led the sector higher, climbing as much as 6.3% and 5.9%, respectively, in mid-day trading before giving back some of those gains as the day went on.
Airline stocks have had a difficult year in 2020, weighed down by the COVID-19 pandemic and its impact on travel demand. Second-quarter revenue for the industry was down 80% year over year, and the carriers do not expect much of a rebound until there is a vaccine.
The airlines do have cash stockpiled to ride out a downturn, but we are going to have to see some signs of improvement in the months to come to ensure that no company runs into liquidity issues.
The holiday weekend in the U.S. brought some positive news. More than 900,000 passengers traveled through Transportation Security Administration checkpoints on Friday, Sept. 4, and on Monday, Sept. 7. Friday's was the highest single-day number since March 17, and a significant improvement from early April when fewer than 100,000 passengers were screened on some days.
JetBlue and Spirit shares did particularly well in part because all indications are a lot of that business was leisure traffic to Florida, where Spirit is based and JetBlue has major operations. The two airlines are also focused on vacation travel, and not business, and are set up to benefit from a surge in tourist demand.
Spirit in particular is an intriguing stock for investors with a strong tolerance for risk. The airline has some of the lowest unit costs in the business, and is well positioned to use low fares to stimulate demand.
Traffic was up over the holiday weekend, but the daily volumes were still half of what they were the same days a year prior. And Labor Day also marks the end of the summer vacation season, meaning a lot of that tourism travel demand is likely to dry up. With business travel still nearly non-existent, the airlines are making plans to cut costs and shrink heading into autumn.
Investors would be well served to focus more on the long-term trends than the day-to-day traffic flows.