What happened

Delta Air Lines (NYSE:DAL) kicked off airline earnings season with predictably miserable results. But the company also predicted better days ahead, and that has airlines flying higher on Thursday.

Shares of Delta peaked at up more than 5% in Thursday-morning trading, while shares of Spirit Airlines (NYSE:SAVE) climbed as much as 8% and shares of American Airlines Group (NASDAQ:AAL) and United Airlines Holdings (NASDAQ:UAL) each were up more than 5%.

So what

The pandemic wreaked havoc on the airlines in 2020, and Delta's year-end results demonstrated what a miserable year it was for the industry. Delta lost $2.1 billion in the fourth quarter and $15.6 billion for the year, posting a mind-bogglingly bad negative 91% margin for the year.

Delta continues to lose money and expects to burn through between $10 million and $15 million per day in the current quarter. But management on the postearnings call was generally upbeat in its outlook for 2021. CEO Ed Bastian said the airline expects an "inflection point" in the recovery this spring, with hopes of reaching cash breakeven by then and perhaps becoming profitable by summer.

A Delta plane takes off.

Image source: Delta Air Lines.

Bastian also said he expects corporate travel to return "aggressively" by as soon as the second half of 2021, raising hopes that the business will begin to normalize as the year goes on.

Given that the pandemic affected all airlines, investors are applying Delta's commentary on a recovery to its rivals as well. Spirit has an industry-low cost structure and a focus on the leisure travelers who are likely to return first, and it should be one of the first airlines to fully recover.

American and United, meanwhile, are the two airlines most similar to Delta in terms of route structure. Some worry that their focus on international and business customers could make them laggards in a recovery, but Delta's messaging that it sees a return to normal coming sooner than some had feared is good news for American and United as well.

Now what

There are some caveats here that investors need to keep in mind. Bastian in the earnings statement called 2020 "the toughest year in Delta's history," but also warned that "challenges continue in 2021." The airline expects first-quarter revenue to be down 60% to 65% compared to a year ago, with scheduled flight capacity set to shrink by 35%.

More worrisomely, the company needs further booking improvement to reach its goal of cash breakeven. A lot of that will depend on how the vaccine rollout goes, and whether or not further travel restrictions or lockdowns are needed before we get there.

As I said coming into 2021, the worst appears to be over for the airlines. But the recovery will take time. Delta's earnings are a fresh signal that it is safe for investors to pile in, but I'd continue to recommend being choosy about what to buy and sticking with either companies like Delta that have a track record of strong results or companies like Spirit that have a near-term advantage that should push the stock higher in the quarters to come.