What happened
Americans returned to the skies this weekend, causing airline stocks to rise.
Shares of American Airlines Group (NASDAQ: AAL), Delta Air Lines (NYSE: DAL), United Airlines Holdings (NASDAQ: UAL), en Alaska Air Group (NYSE: ALK) all traded more than 6% Monday at 12:30 EDT, with shares of JetBlue Airways (NASDAQ: JBLU), Southwest Airlines (NYSE: LUV), Spirit Airlines (NYSE: SAVE), en Hawaiian Holdings (NASDAQ: HA) all up 4% or more.
Allegiant travel (NASDAQ: ALGT) is today the laggard in the sector, but at up 3.6% it is still easily better than the broader markets.
Image Source: Getty Images.
So what
The airlines have been dealing with meager demand since the start of the COVID-19 pandemic. Revenues in the second quarter fell by 80% or more year on year, and with new cases spike in certain parts of the US, there is not much clarity about when demand will return.
Given the uncertainty, investors are keeping a close eye on the day-to-day demand in hopes of mocking the early stages of a recovery. Those watching Monday received good news Monday morning when the Transportation Security Administration reported that 831,789 travelers were screened at airports on Sundays, the highest total since March 17.
BREAKING NEWS: @TSA throughput on Sunday, August 9th. Peaks 800,000 for the first time since March 17 when TSA officers examined 831,789 people. On Saturday, August 8, they surveyed 683,212 people and on Friday, August 7, they screened 762,547 people at checkpoints nationwide.
– Lisa Farbstein, (formerly known as TSAmedia_LisaF) (@TSA_Northeast) August 10, 2020
That is still a year-over-year decline of nearly 70%, but 831,000 daily passengers is an enormous rebound from the low of 87,534 people who flew on April 14th. Equally important, the jump suggests that summer vacationers are not afraid to headline warnings that new cases are on the rise.
Well what
At best, we are in the early stages of what is likely to be a slow, painful recovery. The coming months will present many challenges for the sector.
Airlines have avoided layoffs as a condition of the $ 25 billion in government aid the sector received as part of the CARES Act. That funding, and the ban on layoffs, is set to expire on September 30th. Absent an expansion, we are in for a period of sharp cuts as airlines adjust their networks to the end of the summer holiday season and a decline in government funding.
Flight Data by YCharts
The shares are both good of their low and are still down for the year. For investors who want to buy and hope for the best, I believe there are some airline stocks that now offer attractive risk-reward balance sheets. Just be warned that a recovery will take a long time, and no one-day travel data will provide a very clear signal.
