Airline Stocks Shot Up Today – Why’s That?

Amid optimism about the economy re-opening faster than expected and with forward bookings picking up, shares in US airlines shot up today on the back of broader stock market gains. Analysts believe its also a sign the markets are normalizing in response to altered business conditions.

Airline stocks jumped sharply today. Photo: Tom Boon / Simple Flying

A good day on the markets

American Airlines (AAL) rose 14.85% today to close at US$11.14, United Airlines (UAL) finished the day 16.3% up to close at US$29.54, Delta Air Lines (DAL) rose 13.05% to close at US$25.65, and Southwest Airlines (LUV) climbed 12.6% today to close at US$32.52.

Airline stocks significantly outperformed the Dow Jones Industrial Average increase of 2.2%. But, the Dow Jones Industrial Average, S&P 500, and Nasdaq have all increased by an average of 30% since their March lows.

Passengers beginning to move again

Beleaguered airlines are beginning to see passengers book flights again, not just for immediate travel but also forward travel. Cancelations have also declined.

Passengers traveling through TSA checkpoints nationwide fell to a low of 87,534 in mid-April. By Sunday, passenger numbers had tripled to 267,451. That’s still down 87% on 12 months prior, but it is a sign people are beginning to fly again.

“It would be hard to argue that traffic is going to come back and normalize in the next few months, but there are signs that we may be past the worst,” Adrian Yanoshik, an aviation analyst at Berenberg Bank told the Wall Street Journal today.

American Airlines flights are now running at about 35% capacity, compared with 15% in April. Southwest’s flights are around 30% full, up significantly on their May expectations of 10%. Both Delta Air Lines and United Airlines have said they will be adding capacity over the northern hemisphere summer.

Passenger numbers are slowly starting to increase again, boosting confidence among carriers. Photo: Qatar Airways

A sense of normalization

In addition to the sense of normalization and the belief that the worst may be over, the uptick in travelers prepared to hit the purchase button on travel websites can also be attributed to signs some border restrictions are easing.

For example, Hong Kong will gradually allow passengers to transit through the busy hub from June 1. Singapore will also begin unwinding bans on transit traffic from June 2. Spain plans to lift an automatic two-week quarantine for incoming foreign travelers from July 1.

The markets are also reassured by the level of government support for airlines. The CARES Act is providing US$32 billion for US airlines, including US$25 billion for US passenger airlines. As a result, the big US carriers have received billions in government assistance.

US carriers are reporting better than expected loads and are beginning to add some capacity. Photo: Tom Boon / Simple Flying

The pattern repeated outside the United States

It’s not just in the United States that this is occurring. Earlier this week, Lufthansa announced it would be receiving US$9.8 billion in stabilization measures and loans from Germany’s Economic Stabilization Fund. Lufthansa stocks have risen 15% in the last two days. KLM-Air France and easyJet have also received government assistance.

China Southern Airlines has said it is now operating more than 1,000 daily frequencies, about 70% of what it was running 12 months ago,

Airlines are being cautiously optimistic. Worldwide, passenger and flight numbers are still dramatically down on this time last year. While in the United States, things are starting to look more positive, airline bosses aren’t loosening the reins quite yet. Delta Air Lines‘ CFO Paul Jacobson said this week;

“We have to be careful that those (ticket sales) actually translate into trips and just don’t cancel.”