What happened
Airline shares lifted on Thursday after U.S. health officials approved a 15-minute COVID-19 test Abbott Laboratories. Airlines have suffered because of the impact of the pandemic on travel demand, and in recent weeks, any potentially positive development in the fight against the virus has caused shares.
Shares of American Airlines Group (NASDAQ: AAL) led the sector higher on Thursday, picking up 11.5% while shares of United Airlines Holdings (NASDAQ: UAL) were as high as 10.9%. Spirit Airlines (NYSE: SAVE) en JetBlue Airways (NASDAQ: JBLU) trade 8% the piece up, and Delta Air Lines (NYSE: DAL) en Southwest Airlines (NYSE: LUV) were both up 7%.
The entire sector returned some of this profit as the morning wore on, but all of these airlines were up between 4% and 6% as of 11:30 a.m. EDT.
So what
Airlines, and its investors, are struggling in 2020, with second-quarter revenue falling over 80% annually across the sector due to a pandemic-related travel decline. There is no quick fix to what the sector has, but a COVID-19 vaccine if at least better tests to enable rapid diagnosis would be a step in the right direction.
Shares were up on Thursday on news that Abbott was given the green light to sell a cheap COVID-19 test that returns a result in 15 minutes without sending the sample to a lab. The company aims to conduct 50 million of the tests per month by October, which would make it easier for schools and workplaces to reopen safely and for economic activity to normalize.
Image Source: Getty Images.
It is easy to see how such a test can also be used by airlines to help worry travelers calm down. With airlines currently expecting travel requirements to remain sluggish until 2021 and 2022, and share prices to rise, any scientific advancement that has the potential to shorten the time frame is reason for investors to rejoice.
Airlines and the wider markets are also gathering comments from Federal Reserve Chairman Jerome Powell, indicating that the Fed intends to go through what it can to try to prevent a pandemic-related recession.
The individual shares climbed on Thursday presumably proportionally to the risks for each company for a longer decline. American has the most debt in the sector, and is one of the most vulnerable of American carriers, while Southwest and Delta are seen as less of a risk, and for that reason have not seen their shares fall as far as the share of the Americans has.
Enthusiasm for Delta shares could also be tempered on Thursday by reports that the airline could be forced to pay $ 300 million to repay a loan it once supported for Brazilian partner Gol Linhas Aereas Inteligentes. Prior to the pandemic, Delta had been at the forefront of an attempt by US airlines to forge financial ties with international partners, but that effort was repeated to bite the company during the downturn.
Well what
The Abbott test is undoubtedly good news and should be conducted, but investors should be careful not to even advance.
Today’s travel volumes in the United States are 70% year over year, but even at these low levels the test would give every passenger passing through the airports one third of the number of tests that Abbott hopes to pass per month. produce. Given the other, demonstrably more urgent, demand for these tests from schools, hospitals, and workplaces, it is hard to imagine that the development will soon affect air demand.
For now, the calculus for investing in airlines has not changed. The companies all have healthy coffers to help survive a longer downturn, but there is little they can do to stimulate demand and are likely to be a very turbulent ride for many to come.
In view of the risks, investors should focus on top companies, including Southwest and Delta, and ignore the faster, and riskier stocks.
