What happened

It's been a tough year for airline investors, with the stocks rocked earlier in the year by the COVID-19 pandemic and swinging higher and lower in the months that have followed on news about the pandemic and its economic impact.

Friday was a microcosm of the last six months, with the airlines falling sharply in the morning and then rallying midday. The entire sector was in the green as of 2:30 p.m. EDT, but at various points in the day Spirit Airlines (SAVE 2.50%) and United Airlines Holdings (UAL 0.36%) were down more than 5% and both United and American Airlines Group (AAL -0.85%) climbed more than 5%.

So what

For the airlines right now, all eyes are on Washington. The industry has seen revenue evaporate due to the pandemic, but airlines have avoided bankruptcy in part thanks to $50 billion in government support provided by the CARES Act.

Half of that aid came in the form of payroll support, and was conditioned on the airlines doing no involuntary separations before Sept. 30. With the deadline now past and travel demand still showing no signs of recovering, the airlines are making plans to grow dramatically smaller, with American and United announcing a combined 32,000 cuts on Oct. 1.

An airport screening station.

Image source: Getty Images.

Lawmakers from both parties have been pushing to extend the payroll support and layoff prohibition for another six months, but the effort has been caught up in the election-year battle over a broader stimulus package.

The stocks have traded down in recent days and started Friday pointed downward, in part due to the announcement that President Donald Trump had tested positive for COVID-19. That's a fresh reminder that the pandemic is nowhere near contained, and an outbreak on Capitol Hill could make it harder to get legislation done in the weeks to come.

The midday rebound followed comments from House Speaker Nancy Pelosi saying that her chamber was willing to pass stand-alone legislation to fund airline payrolls if no broader agreement on a stimulus package can be reached. But the rally faded some as the House adjourned for the weekend around 2 p.m. EDT, meaning airline relief was on hold until Tuesday at the earliest.

American has been among the most volatile airline stocks for months now due to the carrier's industry-high debt load, which investors worry make it more vulnerable to a prolonged downturn.

Now what

Lost in a lot of the drama surrounding the airlines this week is what this second stimulus would mean for the industry, and what it wouldn't mean. The airlines, thanks to the CARES Act and private fundraising efforts, have adequate liquidity for now and are in no immediate danger of bankruptcy should the effort in Washington fail.

That's not to say the effort is meaningless, either for the tens of thousands facing furloughs, or for the airlines. The industry doesn't expect travel to return to pre-pandemic levels until 2022, at the earliest, but would love to keep workers on the payrolls in order to quickly ramp up operations should those estimates prove to be overly pessimistic.

The bottom line is whatever happens in Washington the airline stocks are in no immediate danger of going to zero, but they're also unlikely to rally higher any time soon. For investors, the best advice is to ignore the noise and focus on the best-run airlines that should survive and thrive no matter what lies ahead.