The peak season for travel – as it is – is almost over, and without conferences or events to confirm business travelers this fall, the modest recovery of the airline industry could quickly lose ground.
Why it matters: Investors have recently revamped airlines as shareholders – encouraged, in part, by reports of potential advances to a coronavirus vaccine that could boost air pressure depression.
Investors seem to be betting that furloughs and other deep-cost cuts – and perhaps another round of federal aid – will put airlines in decent shape for a financial recovery if travel resumes.
- But a vaccine does not end the pandemic immediately.
- Laws on travel “reopened” shares – such as cruise lines, hotels and airlines, which would likely flourish if COVID-19 were submerged – remain a risky play and ultimately depend on when the traveling public feels safe to fly and spend money again.
What’s happening: The resale trade has been popular since the beginning of August. Hotels like Marriott and Hyatt have each received 12%. Airline shares represented by the JETS ETF are up 9%, and MGM Resorts grew by 30%.
- They far surpassed the S&P 500’s gain of 3% in that time, and even the red-hot Nasdaq’s 4%.
What they say: “Companies are now in a lean and mean position that you rarely get, except after a depression,” Jim Paulsen, chief investment strategist at Leuthold Group, told Axios.
- “CEOs are worried the least and have almost no cost on the books. That’s a bottom line profitability recipe that is not valued by Wall Street.”
Yes, but: Short sellers – investors who bet that companies’ shares are too much and profits when they fall – are set to bet on the airlines, with $ 95 million in new short sales last week, according to data firm S3 Partners .
- Airline shorts raised $ 3.15 billion for the year.
- “It seems that shorts think that the recent rally of the airline is a bit exaggerated and are looking for a full-term withdrawal, at least until actual ridership of the airline occurs in a larger and broader way,” Ihor Dusaniwsky, S3’s managing director of predictive analytics, Axios says.
For the record: the aviation industry was heading for another year of record revenue in 2020 in the year when COVID-19 all closed in mid-March.
- Passenger volumes fell more than 90% in late March and early April, amid orders of stay-at-home and international borders close.
- Business income fell an average of 86.5% in the second quarter, per Airlines for America.
By the figures: According to data from the trade group:
- As of mid-August, domestic passenger volumes are still down 70% from a year ago; international travel is down by 88%.
- The average domestic flight is 47% full, vs. 88% a year earlier.
- About 717,000 people have mid-TOS checkpoints per day in mid-August, vs. 95,000 in mid-April and more than 2 million per day for COVID.
Quarantine restrictions have had a major impact on trips to some regions: Flights to New York and New Jersey are the most slow, due to New York’s inclusion of travelers from states with high infection rates. Travel to Hawaii, which has similar restrictions, is almost non-existent, with passengers accounting for over 94% a year.
Almost all who fly are holiday travelers – people visiting friends and family, or taking family vacations after being cooped up all spring.
Bank of America analysts sound a note of caution: “We are only a few weeks away from moving the peak season for travel, and in a more business-difficult period. With business volumes not signaling away from trough levels, we believe there may be a risk to domestic volumes when we move in September. ”
What to see: The recovery will be complete, warn airline drivers.
- “I think it’s probably two to three years,” Delta Air Lines CEO Ed Bastian told Axios on HBO in June.
- “I think two things are happening. First is the success against the virus. We hope that over the next 12 to 24 months there will be a vaccine that is widely available.”
- “The second part we need to talk about, though, is the economic impact,” he said, “will be quite significant.”
- Plus, some business trips can be gone forever, as road fighters switch business trips for Zoom meetings.
The finish line: Aviation took 3 years to recover from 9/11, and more than 7 years to recover from the global financial crisis, Airlines notes for America. We can expect a similar slow recovery this time.
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