Masks are back, and scientists are getting increasingly worried about a new wave of the pandemic. The concerns have airline stocks losing altitude on Friday, with Spirit Airlines (NYSE:SAVE) falling as much as 5%.
Airline investors endured a miserable 2020 due to the pandemic, but as the vaccines gained traction last winter the stocks began to rebound. A summer of full flights has gone a long way toward restoring investor confidence that there is strong pent-up travel demand, but the delta variant of the coronavirus is threatening to halt all that progress.
The Centers for Disease Control and Prevention is urging Americans to start wearing masks inside again after a study found that vaccinated individuals appear to carry as much virus as the unvaccinated. There is fear that absent preventative measures the new variant could spiral out of control.
It's not hard to see why these developments are spooking airline investors. At best the new guidelines might limit demand heading into the fall as people rethink travel plans in light of the new risks. At worst, we could eventually see new travel restrictions or quarantine rules that could send the airlines back to square one.
Spirit, a leisure-focused discounter, has performed well this summer thanks to its focus on flights to tourist destinations. The company said earlier this week it lost $0.34 per share in the second quarter, well better than the $0.86-per-share consensus, on revenue that at $859.3 million came in about $50 million ahead of expectations.
Investors have been piling into Spirit thinking the airline is likely to be one of the first to recover, so it only makes sense for it to be the big loser on a day when that recovery has been thrown into doubt.
The timing of the recovery might be in question, but for long-term holders there is still a lot to like about Spirit right now. Prior to the pandemic it was one of the fastest-growing airlines in the industry, and management said this week it is comfortable ramping the network up to 2019 levels.
Spirit has $2.2 billion in liquidity, ample to survive even a second wave, and has a lot of opportunities to fill in its route map and grow in the years to come. For those willing to ride through a little near-term turbulence, there is no reason to sell Spirit Airlines stock based on these new reports.