Airline stocks have mostly moved in tandem since the pandemic began, and for the most part they have headed downward. But progress toward a vaccine has raised hopes the pandemic might soon be over, and has investors thinking about an aviation recovery.

As travel demand normalizes, expect the stocks to trade more on individual airline strengths and weaknesses. In this segment from Motley Fool Live, recorded Thursday, Nov. 19, "Industry Focus" host Nick Sciple and Motley Fool contributor Lou Whiteman discuss which airlines are likely to recover first.


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Nick Sciple: So, as we look out into this future, we can kind of see a path forward for airlines, is this a time where we can pick out some winners and losers of this recovery?

Lou Whiteman: Yeah, you know, it's funny, and it does make sense. For most of this period, the airlines have traded together, they haven't traded on individual company news, they've traded on their just, kind of, existence. I believe we're starting to see separation; I think we're going to see more of that. It's time to start thinking, who recovers first, who recovers better? It's kind of the way I think of this is, who's sandboxes this, who wants to play or who is well set up to play in the market that we're likely to get? If you look at Southwest (LUV -0.84%), they have been very aggressive. Southwest, historically, has been brutal during downturns, vicious, and I mean that with the most respect possible. And they're doing it again, they've added nine new destinations since the pandemic began, two of them, Houston and Chicago O'Hare are big United hubs. They see weakness, they are aggressively going for it, they have a great balance sheet, they can recover sooner. Southwest is also in talks with Boeing  to take some of the jets that maybe Boeing can't find a home for. Again, trying to get a deal from Boeing. This is how Southwest operates, and this is why it's been such a great stock over the years.

We have other companies; Delta (DAL 1.16%) is trying to differentiate itself. It's the only airline blocking middle seats through next March. This is giving up near-term revenue to try to establish itself as a premium brand or a trusted brand. It'll be interesting to see if it works.

And then you have other companies that are well-suited for, I think, the environment that we are going to see. Spirit Airlines (SAVE 0.36%) is one I keep coming back to, that they are the lowest cost operator, a lower cost operator than even Southwest. They live and die on leisure travel, which is what's going to come back first. We have already seen them start limited international Caribbean coming back. I think, you know, Spirit may not be the best airline to own for the next 15 years, but I think over the next year, they're going to be back to normal a lot sooner than some of these others, and I would think that their stock would show that in the quarters to come.

Sciple: So, yeah, when you mentioned Delta, do you think we'll see that in their marketing of, you know, we're the only company that's still blocking middle seats? Like how we see with Apple, you know, we're the company that cares about privacy.

Whiteman: I think so. We've already seen it on their Twitter, their Twitter was, you've asked, we're listening, was the message they put out yesterday. And you know, I mean, I don't think you're going to see ads with maybe, if you fly United (UAL 3.32%), you're going to have a guy with a cold next to you. [laughs] You know, I don't think they're going to be that blunt, but I think they are really going to try to trumpet it, especially through the holidays. We'll see if it works. I'm in Atlanta, so anything I hear on Delta is going to be biased, [laughs] so I can't really tell you if it works nationally.

Sciple: Yeah, I do think it's particularly interesting to see Southwest using this weakness to take market share, historically it's something this company has done. Do you think they're an interesting company to invest in today, given their ability to exploit some of this weakness other folks are facing?

Whiteman: Southwest is the best airline to own just as part of a conservative long-term portfolio prior to this, and it continues to be so. Yeah, this is their playbook, they can't do what they used to do where -- I mean, in their early days, they would go into a market with lower fares and just, you know, devastate the competition. The competition has, kind of, caught up. So, how they get their competitive advantage now is by being nimble and by using that balance sheet they have. So yeah, they can expand before United does, they can cherry pick some United routes in Houston and Chicago; I think is what they're doing. This is the modern Southwest. And, yeah, this is why this company just continues to be the best performer, it's when you have the balance sheet, when you have those strengths, use them, and that's what they do; they do that very well.

Sciple: Yeah, the quote that comes to mind for me is, you know, for any of the Game of Thrones fans out there. So, Petyr Baelish, Littlefinger, says "chaos is a ladder." And in this case, chaos is maybe a ladder for Southwest.