Airline shares are gaining altitude on Monday on a positive day for broader markets, with travel stocks getting a boost from optimistic talk about the rollout of the COVID-19 vaccines.
Shares of Delta Air Lines (DAL -1.65%), United Airlines Holdings (UAL -1.42%), Southwest Airlines (LUV -0.81%), American Airlines Group (AAL -1.23%), JetBlue Airways (JBLU -0.22%), and Spirit Airlines (SAVE -0.18%) are leading the way, each up as much as 5% in morning trading.
The airline industry was hit hard by the pandemic, which sapped demand for travel and led all the carriers to report losses in 2020. The only way to make a bull case for the industry involves a successful vaccine, and airline shares have been trading in recent months based on optimism, or pessimism, about how quickly we will be able to defeat the virus.
On Monday, the stocks were aided by a bullish vaccine update from two former Food and Drug Administration commissioners, Scott Gottlieb and Mark McClellan, who wrote in The Wall Street Journal over the weekend that they expect there to be a "glut" of vaccine as soon as March. At that point, Gottlieb told CNBC on Monday morning, "we're going to have to make this generally available."
That means, in Gottlieb's words, "everyone is going to be able to go online and get an appointment sooner than we think."
That would be great news if true, both for humanity and the airlines. The best-case scenario for the sector heading into 2021 was that a quick rollout of the vaccine would clear the way for a blockbuster summer vacation season. If Gottlieb and McClellan are correct and the vaccine is widely available by April, the best-case scenario is on track toward becoming a reality.
Spirit has a route network and cost structure ready-made for luring tourists onto its planes with low fares, and should be one of the first airlines to recover should demand return in the months to come. Similarly, Southwest is well positioned to capture leisure traffic and has a history of growing its market share when times are challenging.
Delta, meanwhile, is attempting to differentiate itself by keeping middle seats open even as the rest of the industry has resumed filling its planes. A quicker-than-expected return to normalcy means that strategy -- which deprives the airline of much-needed revenue in the near term -- is less risky than it would be if the pandemic lingers into the second half of 2021.
United and American, like Delta, have full-service international networks better suited for business travelers but like JetBlue should benefit from any uptick in demand.
Airline investors are on a long journey right now, and there are no short cuts. But there is at least a general sense that the industry is heading in the right direction.
Even when passenger volumes return, it is likely to be in the price-sensitive leisure business. Higher-premium business and international flying will take well into 2022, if not longer, to return. And once the companies do turn cash-flow positive, be it in the months to come or later in 2021, their focus is going to be on repairing balance sheets bruised by raising money in 2020 to survive the crisis.
In short, while the crisis is fading there is still turbulence up ahead. Investors who want to climb aboard now will likely be rewarded in time for their patience, but given the risk and uncertainty still involved I'd recommend sticking with top operators like Delta and Southwest, or airlines like Spirit that should be well suited for the operating environment expected in the months to come.