The worst might be over for the airlines, but a recovery is going to take a long time. Some companies will inevitably be able to recover ahead of the pack, and some will be laggards.

In this Motley Fool Live clip from Nov. 19, Motley Fool contributor Lou Whiteman and "The Wrap" host Jason Hall talk about why Southwest Airlines (NYSE:LUV)is set up well to take share from rivals including American Airlines (NASDAQ:AAL) in the quarters to come.


Jason Hall: We've seen airlines stocks as a group, even though a lot are still down, have really run hard and fast recently. I'm sure you've got an airline you can think of that's probably run too fast, and maybe it's too early in the recovery, to call it a good time to buy.

Lou Whiteman: American Airlines is still down 50 percent for the year, but they are up 25 percent in less than a month. Thanks for this vaccine news. People should be very careful with American. American was last to do a merger and a bankruptcy at the last down turn, so they are behind the other companies, Delta (NYSE:DAL), United (NASDAQ:UAL), Southwest, the other three in the big four, are well ahead of them as far as transforming the business. They have more debt than their rivals. They did have some trouble with buybacks. They were the target of a lot of criticism going into these bail outs. This is a company that's even when things normalize, and this could take years, they are going to have the weakest balance sheet, and they are going to need time to recover before they can go on the offensive. We're seeing Southwest start to go on the offensive, attack United and American, both at Chicago moving into new markets. I don't think they're going to go under, I think they're going to make it through the crisis, but American is going to be the laggard in a lot of the recovery. I would be very careful jumping on board this airplane just because the vaccine is coming, and the airlines are going to start getting healthy.

Hall: My view on this one, I think it's an interesting take there and I think you're probably right is, the idea you look at Southwest, Southwest is going to come out of this stronger and better shaped than probably any other airline. Because it's taking market share, because it has the financial capacity to do that while everybody else is weak. This is a situation where a lot of people are looking at the stock price for this company a year ago and saying, that's where it's going to be when it gets back to normal in a year or two, and they are anchoring on a previous price. This is a business what you are saying, that's probably going to be weaker when it recovers, than it was a year-and-a-half ago or so?

Whiteman: Yeah. I think it's going to be harder for them to show results for a long time. It could be the second half of this decade before this business is really ready to thrive. You're going to get it for a lot cheaper, Southwest are just trying the numbers, Southwest is only down 14 percent for the year, if this is right now, which is pretty amazing for an airline. But every down turn we've had, Southwest has gone on the offensive and they've just been vicious taking share. It's not going to be any different this time. American, United, both seem to be in their crosshairs. United can weather the storm. American, they're going to get by, but American is very vulnerable to the attack right now, so just be careful.

Hall: I love it, the takeaway here is you look for great companies that have great prospects, even if they're struggling now, versus just the stock that's fallen the most in the sector, thinking that you're going to get the most returns, because a lot of times they're down the most for a reason.

Whiteman: Absolutely.

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.