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Why Airline Shares Are Higher Today

By Lou Whiteman - Dec 1, 2020 at 6:18PM

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Stimulus talk is percolating again.

What happened

With the U.S. presidential election now in the past, the focus in Washington is shifting back to talk of a second COVID-19 stimulus package, and the potential for additional support for airlines has the sector pushing higher on Tuesday.

Shares of American Airlines Group ( AAL -0.06% ) and JetBlue Airways ( JBLU -0.66% ) are leading the move higher, each up more than 4.5% as of 1:30 p.m. EST.

So what

Airlines have seen travel demand collapse due to the pandemic, with carriers bleeding through millions per day since March. They've survived thanks in part to government assistance, with $50 billion earmarked for the industry in the form of grants, loans, and payroll support as part of the CARES Act.

That aid ran out in September, and a hoped-for second stimulus package in October never materialized. But lawmakers from both parties have continued to meet, resulting in a new, bipartisan $900 billion relief package that became public on Tuesday.

An American Airlines plane leaves the hanger.

Image source: American Airlines.

A spokesperson for one of the senators involved in the effort told Reuters that U.S. airlines would receive $17 billion for four months of payroll support under the proposal. That would give the new administration time to reassess the situation and see how a potential vaccine rollout is going, before deciding if more funds should be approved.

The airlines as part of the CARES Act package agreed to do no layoffs through Sept. 30, but with travel demand expected to take years to return to pre-pandemic levels the carriers have been focused on downsizing in the months since.

American has furloughed 19,000 workers, and is widely seen as the most vulnerable of the major carriers due to its industry-high debt load. JetBlue meanwhile is likely up in part as a bounce back after falling on Monday following the airline lowering expectations for the fourth quarter.

Now what

Airline stocks flew through a lot of turbulence in October on a steady stream of reports about the potential for a second stimulus plan. What we learned then is there is a big difference between a proposal and an actual package, and investors should be careful about getting too excited about proposals.

Investors also need to be clear about what this assistance is, and what it is not. Assuming a vaccine rollout goes according to schedule, the airlines shouldn't need any additional funds to avoid bankruptcies. What the assistance would do is help avoid furloughs -- but the success or failure of this proposal does not change much about the industry's viability.

That doesn't mean investors shouldn't be watching carefully. The payroll assistance would allow the airlines to keep personnel on campus, trained, and ready to respond if demand bounces back faster than expected. It would also help management teams avoid potentially difficult conversations with labor unions.

A second stimulus package would be good news for airlines and their investors. But these stocks can remain airborne regardless.

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.

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Stocks Mentioned

JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
JBLU
$13.53 (-0.66%) $0.09
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL
$17.74 (-0.06%) $0.01

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