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Airline stocks soar as Americans get ready to travel again

Investors are bullish on travel stocks again.US airline stocks had an exceptionally strong week last week on rising...

Posted: Jun 8, 2020 12:24 PM
Updated: Jun 8, 2020 1:00 PM

Investors are bullish on travel stocks again.

US airline stocks had an exceptionally strong week last week on rising hopes that summer travel would be better than originally feared.

The nation's four major airlines, which had lost between 40% and 68% of their value year-to-date through the end of May, all posted solid gains last week, including a 77% jump at industry leader American Airlines and a 19% gain at Southwest.

Airline stocks were up again Monday after Bank of America raised its recommendation on two smaller airlines — JetBlue, to neutral from sell, and Alaska Air, to buy from neutral. Most of the airline stocks were up between 5% and 11% in midday trading Monday.

'The leisure rebound is real'

'The recovery had to start at some point,' wrote analyst Andrew Didora. 'Airlines were not going to have zero revenues forever, and our base case has revenues recovering from down 90% early on to down 55% in the second half of this year. On top of the recovery, we think the airline trade has been driven by a reduction in bankruptcy risk across airlines ... This was never our thesis.'

Didora warned that business travel, the more lucrative part of the airline business, is likely to trail a rebound in leisure travel, and the low level of flying will put downward pressure on fares.

But he said the better outlook is justified because 'the leisure rebound is real.'

The airlines stocks also got a lift from news that TSA screenings at US airports topped 400,000 on Friday and again on Sunday, the highest they've been since March 22.

Screenings this past weekend were still down 84% from a year earlier, but that's a big improvement from the 90% drop in May and the 95% drop in screenings in April. Screenings bottomed out at about 87,500 on April 14.

Not everyone is convinced

American Airlines also helped the sector last week by bringing back many of the flights it had grounded. It announced it would fly 55% of its normal schedule in July, a huge jump from the 20% of the schedule it is flying in June.

All of the airline stocks are still down 20% or more so far this year. And not everyone is convinced it is time to get back into airline stocks. Investor Warren Buffett, whose Berkshire Hathaway held among the largest stakes in the four major US airlines heading into this crisis, disclosed earlier this year he has sold all of those stakes. He expressed concern they faced a long, unavoidable downturn in demand.

Buffett's decision to sell was criticized by President Donald Trump on Friday as he was discussing the unexpected gain in US jobs in May.

More signs of hope for summer travel

It's not just the airline stocks that are enjoying a rebound on hopes for a better travel season.

Boeing, which announced plans to cut 10% of its staff in the face of canceled and delayed orders for new planes, enjoyed a 41% jump in its shares last week, as well as an 11% rise in trading Monday.

Norwegian Cruise Line and rival Carnival Corp., which have not announced when they'll be able to resume most sailings, saw shares rebound 43% and 37% respectively last week, and each were up another 11% in midday trading Monday. Hotel operators Hilton and Marriott posted more modest gains, as did online travel site Expedia.

Privately held Airbnb reported Monday that it had more US bookings between May 17 and June 3 than the same time period a year earlier. That signals Americans are ready to travel, albeit primarily within the United States.

-- CNN Business' Jordan Valinsky contributed to this report.

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