An Airline Winner and a Loser From the Vaccine News

Pfizer has passed a major milestone in the development of its COVID-19 vaccine, and airline investors on Nov. 9 celebrated the news by sending industry shares soaring higher.

But a vaccine is still months away from widespread availability, and the initial rollout is unlikely to impact all airlines equally. Appearing on Motley Fool Live on Nov. 9, Motley Fool contributor Lou Whiteman and "The Wrap" host Jason Hall discuss which airline is likely to take off on further vaccine developments, and which airline could remain grounded for longer.

Jason Hall: Lou Whiteman, let's see. We'll head back to the airline business. I know you've got a couple of interesting one here as far as who do you think who will be a winner and I'm really interested to hear what you have to say as far as the loser you've identified.

Lou Whiteman: Yes. I was thinking today a winner and loser based on the news. I want to caveat with this, because as far as investment advice, if you are going to buy an airline right now, stick with the safest, stick with Southwest (LUV 1.14%) and Delta (DAL -0.02%). I don't mean this to be that this is the best buy, but just as far as who wins and who loses from this, where the opportunities are. The winner I thought is Spirit Airlines (SAVE -0.12%) and that's S-A-V-E is the ticker. They are the lowest cost provider out there on a per seat basis. They are more efficient than Southwest, shall we say.

Jason Hall: When they actually have paying customers, that's the key caveat. When they have paying customers, they are [OVERLAPPING].

Lou Whiteman: Well, yeah. But everybody is in this boat together. That's the thing, again, nobody. But on a per unit basis, the way we measure this in the industry is how much does it cost to fly one seat one mile? They are well below anybody else on this. If you imagine a scenario that we talked about where it is very leisure-focused, where there's pent-up demand, but maybe some nervous people, the way travel always comes back after recession is leisure comes first. That's because it is the most easily stimulated by low fares. Spirit is set up with a base in Florida with a low cost basis to take advantage and really capitalize on leisure fares. They had a great third quarter relative to the industry and what's going on. I think they're going to be one of the first back if this bull scenario, if the vaccine plays out the way we hope. It's not who you think, but this is their time to shine. This is the sandbox they want to play in and I think it's a real interesting one to watch.

Jason Hall: This one to me from talking to you about this company before, it's the risk-reward opportunity. Because the thing that makes Southwest ticker, LUV, and Delta Airlines, DAL, that makes them, it's the floor. They're the ones that have the strongest balance sheets. They're the ones that are most likely to be able to ride out a much longer, more protracted downturn, and still emerge as going entities without having to go through bankruptcy or something else that wipes out common investors. That's not necessarily a strength for Spirit.

Lou Whiteman: Spirit is down 47 percent on the year after today with a 20 percent gain, Southwest is down only 18. I don't have the PE in front of me, so we can't really do evaluation [OVERLAPPING].

Jason Hall: Well, there's no E on those companies, they're not earning any money [LAUGHTER].

Lou Whiteman: Yeah. You have to go back. But no, exactly. Spirit is a very high risk, but a very high reward I think, because again, this is a market that plays to them better than I think it plays to say United or even some of the bigger companies. I don't know if they're the long-term world beaters, but in terms of who's going to get back first, I think if this plays out the way we hope it does with the vaccine, I think they could be back to normal a lot sooner than some of these that need the international, that need the business more.

Jason Hall: Interesting.

Lou Whiteman: I think they are a relative winner for now. Similarly, I guess my loser is going to be Hawaiian Airlines (HA -0.89%).

Jason Hall: Well, that's interesting. This is the stock that just crashed it today.

Lou Whiteman: Yeah, fifty percent up. I'm that much of a negative human being that I really [...]. [LAUGHTER]. But now look, here's their problem. You know by the name, even if you know nothing about them, they are a very niche player. In normal times, they really, really lean on international transpacific travel. More than half of their routes prior to pandemic were going west from Hawaii, not east. Hawaii and Asia are a big travel market. It's a huge tourism market. International isn't coming back in 2021. They have high cost because everything goes across the Pacific, and meantime, in this scenario, you have airlines like Southwest and United (UAL 0.06%) that are going to be saying where can we make money domestically. They are going to be throwing the kitchen sink at Hawaii. You've already seen it, United is demoing some of their COVID testing on their San Francisco to Hawaii flight. This is their priority for now, basically is let's get this working. This is a rare chance for you to get a premium fare on a domestic leisure market. I think everybody is going to be throwing metal into this market. In normal times prior to the pandemic Hawaiian's answer was that, we're going to fly to Tokyo, we're going to make money off of that and we're going to counteract the price wars to California, they can't do that right now. Everything I just said about Spirit, this is the market they want to play in. This is just a really tough operating environment for Hawaiian, and it's just hard to imagine they're going to rebound quick.