What happened
Airline stocks are flying higher for the second Monday in a row, and the explanation for today's jump is similar to last week's. This time it was Moderna out with good news concerning a COVID-19 vaccine candidate, which means the odds are improving that we're nearing the beginning of the end of the pandemic.
Shares of United Airlines Holdings (UAL 5.50%) and Spirit Airlines (SAVE -1.95%) both jumped more than 8% at the open Monday, and shares of Delta Air Lines (DAL -0.06%), Southwest Airlines (LUV 0.97%), American Airlines Group (AAL 0.94%), and JetBlue Airways (JBLU 4.10%) all jumped 5% or more. The stocks have given up some of those gains as the morning goes on, but they are still easily outpacing the broader market.
Image source: Getty Images.
So what
Airline stocks have been among the big losers due to the pandemic, as demand for travel has plummeted and is expected to remain low for years to come. The only way to make a bull case for the stocks is if the pandemic is contained, and that won't happen until there is a successful vaccine.
The industry rallied last week following Pfizer's announcement that its vaccine candidate prevented more than 90% of infections, and the stocks are doing the same today after Moderna announced its vaccine has an even higher efficacy rate. While any one successful vaccine would mark progress in the fight against COVID-19, the idea that there are now two seemingly effective vaccines improves the odds that at least one will clear final regulatory scrutiny and a rollout of doses will soon follow.
Great day for patients. We may have two highly effective vaccines for Covid if results from the interim Pfizer and Moderna trials are confirmed by the full data sets. The acute phase of the U.S. pandemic will end in 2021. We must work together to get through the next 3 months https://t.co/XhetXU70nd
— Scott Gottlieb, MD (@ScottGottliebMD) November 16, 2020
Airline stocks are also benefiting from comments by advisors to President-elect Joe Biden favoring local measures to counter the pandemic instead of advocating for a nationwide lockdown. Regardless of health advisories, some people are likely to travel this holiday season if allowed, which means the prospects for increased revenue flowing to airlines before year's end.
Spirit is likely getting an extra pop after announcing plans to bring back limited international service in December. The airline will fly from Orlando to a number of Latin American destinations to try to capitalize on whatever vacation demand there is over the holidays.
Now what
As we said last week, airline shareholders have every reason to be excited. The positive vaccine news over the past two weeks suggests that the most optimistic scenario possible might be playing out. But as we also said last week, be careful not to get too far ahead of yourself.
Even if the vaccines work as hoped, it will likely be mid-2021 at the earliest before they are widespread. That means airlines have at least another six months, if not more, in survival mode before there is any sort of a travel rebound. Once a rebound begins, airlines will be focused on paying down the billions in debt they took on during the pandemic. And there is the risk that the pandemic will permanently alter behavior, perhaps putting a dent in once-lucrative segments of the business including corporate and international travel.
For those wanting to buy into an eventual airline rebound, focus on top-run companies including Delta and Southwest. There are also other, nonairline investments that could be better ways to bet on an eventual aviation recovery. We're on the right path, but it will still take a long time to reach the destination.
