The pandemic-era mandate that masks be worn on public transportation appears to be on its way out. The news, coupled with lower oil prices, has airline stocks soaring on Wednesday, with American Airlines Holdings (AAL -0.08%), United Airlines Group (UAL -0.64%), and JetBlue Airways (JBLU 5.05%) all up about 5% apiece.
The airline industry struggled during the pandemic, and has been slowly on the mend since the rollout of the first COVID-19 vaccine. But the recovery has been choppy, with the constant threat of a new variant or an uptick in cases ever-present in investors' minds.
It's premature to say the pandemic is over, but the industry got a massive symbolic boost on Tuesday when a federal judge in Florida threw out the national mask mandate for public transportation, including airlines. The airlines have generally responded quickly, going to mask-optional for employees and passengers pending a potential U.S. government appeal.
The rally in airline shares was also fueled by lower oil prices. The International Monetary Fund downgraded its global growth forecast overnight, which caused oil prices to fall as much as $5 per barrel. Fuel accounts for as much as 30% of airline operating expenses, so a decline in the price of crude can translate to better profitability for the carriers.
The market is also bidding up the airlines ahead of an important 24 hours in earnings season. United is set to report after markets close on Wednesday, and American follows on Thursday, giving investors a better read on how the airlines view demand and cost issues. Delta Air Lines gave the entire industry a lift last week after it reported better-than-expected results and provided an upbeat outlook for the rest of the year.
One thing the last few years have taught investors is how much can go wrong that is outside of the airlines' control. The mask mandate is a nice symbolic win for the industry, but it is hard to imagine it will really get more people flying or change the calculus on demand for the remainder of the year. And it does nothing to halt the risk of a new variant or surge that could change summer travel plans.
Investors will get a better idea of how the rest of the year might go at United and American after their earnings releases, but in reality not matter what is said the industry is still in for a multi-year recovery that could be delayed even further by forces outside of the airlines' control. Investors buying in now and hoping for the best should keep their seatbelts fastened, and be ready for further volatility in the months and weeks to come.