Why airline stocks are on the rise today

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What happened

Airline stocks gain altitude Monday on a positive day for broader markets, with travel stocks boosted by optimistic discussions about the deployment of COVID-19 vaccines.

Actions of Delta Airlines (NYSE: DAL), United Airlines Holdings (NASDAQ: UAL), Southwest Airlines (NYSE: LUV), American Airlines Group (NASDAQ: AAL), JetBlue Airways (NASDAQ: JBLU), and Spirit Airlines (NYSE: SAVE) lead the way, each up 5% in morning trading.

So what

The airline industry has been hit hard by the pandemic, which has sapped demand for travel and led all carriers to report losses in 2020. The only way to defend the industry involves a successful vaccine, and the actions of people. airlines have negotiated recently. months on the basis of optimism or pessimism about how quickly we will be able to defeat the virus.

Image source: Getty Images.

On Monday, stocks were aided by a bullish vaccine update from two former Food and Drug Administration commissioners Scott Gottlieb and Mark McClellan, who wrote in The Wall Street Journal over the weekend they expect there will be a “glut” of vaccine as early as March. At this point, Gottlieb told CNBC on Monday morning, “we’re going to have to make this available to everyone.”

This means, in Gottlieb’s words, “everyone is going to be able to go online and get a date sooner than we think.”

It would be great news if this were true, both for humanity and for the airlines. The best scenario for the industry before 2021 was that a rapid rollout of the vaccine would pave the way for a successful summer vacation season. If Gottlieb and McClellan are right and the vaccine is widely available by April, the best-case scenario is on its way to becoming a reality.

Spirit has a ready-made route network and cost structure to attract tourists to its low-cost planes, and is expected to be one of the first airlines to recover if demand for return is requested in the coming months. Likewise, Southwest is well positioned to capture leisure traffic and has a habit of increasing market share when times are tough.

Delta, meanwhile, is trying to differentiate itself by keeping the middle seats open even as the rest of the industry has started to fill its planes again. A faster-than-expected return to normal means that this strategy – which robs the airline of much-needed short-term revenue – is less risky than it would be if the pandemic continued into the second half of 2021.

United and American, like Delta, have full-service international networks better suited to business travelers, but like JetBlue, they should benefit from any increase in demand.

Now what

Airline investors are on a long journey right now, and there are no shortcuts. But there is at least a general feeling that the industry is heading in the right direction.

Even when passenger volumes return, it is likely to be the price sensitive leisure sector. Higher premium commercial and international flights will take a good chunk of 2022, if not longer, to return. And once businesses have positive cash flow, whether in the coming months or later in 2021, they will focus on fixing battered balance sheets by raising funds in 2020 to survive the crisis.

In short, as the crisis recedes, there is still more turbulence to come. Investors who wish to get on board now will likely be rewarded in time for their patience, but given the risk and uncertainty still involved, I would recommend sticking with the best operators like Delta and Southwest, or airlines like Spirit who should. be well suited to the operation. environment expected in the coming months.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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