The airlines ran into a patch of turbulence on Thursday, zapping some of the momentum the sector has enjoyed in recent weeks. It's too soon to declare the "reopening trade" over, but it wasn't a good day to be investing based on expectations that COVID-19 would soon be in the rearview mirror.
Leading the way downward were shares of American Airlines Group (AAL), United Airlines Holdings (UAL), JetBlue Airways (JBLU), and Spirit Airlines (SAVE), with each stock down more than 5% for the day.
For all the problems airlines had in 2020, the companies have been flying high so far this year. All four of these stocks are up at least 20% year to date, even with Thursday's sell-off, and Spirit is up nearly 40%.
The pandemic was the reason for last year's declines, and hope that vaccines will allow us to return to normal in the months to come has been pushing the stocks higher. News from the White House that all American adults should have access to a vaccine in time for the summer travel season had airline stocks gaining ground yesterday.
Airlines seemed to get caught up in the broader selling downdraft on Thursday, with the Dow Jones Industrial Average off by more than 300 points as of 3 p.m. EST.
There might not have been much specific news from the industry to trigger Thursday's sell-off, but it is fair to ask the question of whether the industry has come too far too fast after posting such solid gains in the first two months of the year.
It seems likely that the summer vacation season might come in much better than some had feared only a few months ago. There appears to be significant pent-up demand for leisure travel, and if the vaccine is widespread, expect flights to typical tourist destinations to be full by mid-year. Spirit, with its industry-low cost structure, is set up particularly well to take advantage, and American, United, and JetBlue are all rearranging their route maps to better cater to expected demand.
The fledgling recovery should also eliminate any lingering fears that airlines including American and United will face a liquidity crisis, a relief to investors.
But the path forward is not clear for airlines, especially those like United and American that rely heavily on business and international travel. Those segments of the industry are likely to take much longer to return. Airlines have also taken on significant debt over the past year which will have to be paid off when revenue returns.
I can justify the recovery in the shares, but it is hard to say for sure most of these stocks still have a lot of room to run. Today's decline in airline stocks is not nearly as frightening as what we were experiencing in March 2020, and I don't think it is nearly the buying opportunity, either.