What happened

The airlines on Monday are making the rounds with investors talking up the industry's improving financial position, and it is having the desired effect. Airline stocks are on the move higher on Monday, with American Airlines Group (AAL -2.00%) up as much as 11%, United Airlines Holdings (UAL -0.07%) up nearly 10%, and Delta Air Lines (DAL 0.83%), JetBlue Airways (JBLU -1.90%), and Spirit Airlines (SAVE 0.79%) each up 5%.

So what

Airlines endured a miserable 2020, with the pandemic weighing on travel demand and sending the companies to deep losses. They are still losing money, but airline execs taking the virtual stage for the J.P. Morgan Industrials Conference on Monday said that should change in the weeks and months to come.

Delta CEO Ed Bastian said that while the airline will post a large loss in the current quarter, bookings have picked up in recent weeks and he expects the airline to be "at or pretty darn close to breakeven" in March in terms of cash burn.

A plane flies above the clouds.

Image source: Getty Images.

United CEO Scott Kirby had a similar forecast, saying his airline expects to halt cash burn in March and continue that positive trend in the months to follow. American, perhaps the weakest of the major carriers heading into the pandemic, during the conference and in a follow-up interview on CNBC said, "the last three weeks have been the three strongest weeks since the pandemic hit."

JetBlue in a regulatory fling said it "has experienced an improvement in bookings by leisure and visiting-friends-and-relatives customers," though it did not provide an update on its cash situation. And Spirit said it expects its adjusted margin to "come in toward the better end" of its guidance of negative 45% to negative 55%.

There is evidence from the Transportation Security Administration that backs up all that optimism. The TSA screened more than 1 million passengers on Sunday, the fourth consecutive day where throughput exceeded 1 million passengers. That hasn't happened since March 2020.

Now what

Conditions are definitely improving, and the bull case scenario from last fall, a widespread vaccine in time for the summer vacation season, appears to be materializing. Still, investors need to be careful here.

SAVE Chart

Airline data by YCharts

The stocks have rallied in 2021 in anticipation of that improvement, and most now are ahead of where they were prior to the pandemic in terms of debt-adjusted valuation. That's tough to justify, given we still don't know how long it will take for more lucrative segments of the industry including business and international flights to return. Southwest Airlines (LUV 0.57%) CEO Gary Kelly told the investment conference going by past recessions he believes it could take five years for business travel to fully recover.

For now, this is a momentum trade. The stocks might trade up more in the weeks to come on continued excitement about the post-pandemic world, but based on current valuations and the risks that still remain it is hard to get excited about recommending buying these stocks at these altitudes.