What happened

The vaccine-inspired rally in airline stocks continued on Tuesday, with industry shares soaring on talk the first COVID-19 vaccine will soon be deployed.

American Airlines Group (NASDAQ:AAL) and United Airlines Holdings (NASDAQ:UAL) traded up as much as 10% on the day, while shares of Spirit Airlines (NYSE:SAVE) climbed more than 8%, and Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV), and JetBlue Airways (NASDAQ:JBLU) were each up more than 5% apiece during the trading day.

So what

The airlines have been hit hard by the pandemic, but the stocks have been pushing higher so far in November on a steady flow of positive news concerning the development of a vaccine. Markets were up on Tuesday on word that Pfizer and BioNTech intend to file for an Emergency Use Authorization for their vaccine, meaning some high-risk individuals could be vaccinated as early as December.

A plane taking off on a runway

Image source: Getty Images.

Airline revenue is unlikely to bounce back as soon as a vaccine becomes widespread, but it's hard to make a case that the industry can recover until there is progress on a vaccine. So although it is too early to say airlines are out of danger, there is at least finally a light at the end of the tunnel.

Airlines also likely were bid up on some signs out of Washington that the postelection transition will soon begin. The industry is still hoping to get a second round of financial relief from lawmakers, but that's not going to happen until things begin to normalize in Washington.

Now what

These airline stocks are now all up between 22% and 34% this month, but they are all still down for the year. Investors are right to be excited about what the vaccine development means for the industry, but they need to be careful not to get ahead of themselves.

LUV Chart

Airline data by YCharts

The existential threat to the airlines is beginning to lift, but the path ahead is still full of turbulence. Southwest and Spirit have begun to go on the offensive ahead of an eventual recovery, but even Southwest is warning that business travelers could need a decade before they return at prepandemic levels.

For the airlines, the best-case scenario at this point is a gradual recovery heading into next summer, and then a surge in demand from vacation travelers as a vaccine becomes more readily available. We're on course for that outcome, but even so it will take the airlines years to rebuild their balance sheets and hit cruising altitude again.

Investors need to be selective here and understand they could be in for a long wait. For those interested in making an airline stock part of a well-diversified portfolio, I'd advise sticking to the best-run carriers, including Southwest and Delta, or an airline like Spirit that is set up well to take advantage of a tourism-fueled, and price-sensitive, recovery.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.