It is no longer news that the Airline industry remains one of the worst-hit corners of the investing space amid the ongoing coronavirus pandemic. However, despite the existing challenges, shares of heavyweights like American Airlines (AAL - Free Report) , Delta Air Lines (DAL - Free Report) , United Airlines (UAL - Free Report) , Southwest Airlines (LUV - Free Report) and Alaska Air Group (ALK - Free Report) have appreciated 14.7%, 21.2%, 14.9%, 23.3% and 16.5%, respectively, over the past month. The Zacks Airline industry also increased 17% in the same time frame.
This northward movement in stock prices against the backdrop of coronavirus-led adversity is certainly heartening. Let’s look at the reasons responsible for this uptrend.
Improvement in Passenger Demand: Though air-travel demand is still trending way below the year-ago levels, there has been a slight recovery in it (particularly in leisure demand). For instance, Southwest Airlines management recently stated that there was an improvement in demand for August after a lull in July due to the spike in coronavirus cases in certain parts of the United States. Booking trends for September also showed a modest uptick.
That Americans are slowly taking to the skies again is reflected in the surging number of passengers screened by the Transportation Security Administration (TSA) at airports. Notably, TSA screened 807,695 passengers last Sunday (Aug 30), marking a huge increase from the April 14 figure when only 87,534 people were screened.
This significant growth bodes well as we head for the Labor Day holiday weekend. The recent updates on cash burn by some carriers are also encouraging. Evidently, Alaska Air expects its cash burn to decline to less than $125 million in August from approximately $175 million in July.
IATA’s Promising July Traffic Report: That the improvement is not only limited to the United States is evident from the International Air Transport Association’s July traffic report. Per the International Air Transport Association, passenger demand in July (measured in revenue passenger kilometers or RPKs), though down 79.8% year over year, improved from June levels when the year over year decline was 86.6%. This positivity can be attributed to the impressive performance by the domestic markets of Russia and China.
European carriers including the likes of Ryanair Holdings (RYAAY - Free Report) also witnessed an expansion in July traffic, comparing favorably with the June-level owing to easing of restrictions. Ryanair currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Even though July traffic for the North American carriers plunged 94.5% year over year, the same bettered from the 97.1% decline noticed in June.
Positive Developments on COVID-19 Vaccine: Medical companies across the world are working hard to develop a vaccine for the dreaded disease. Favorable vaccine-related updates also contributed to the northbound direction in the airline stock prices.
Carriers under the aviation industry are hoping that air-travel demand would improve further, following more upbeat vaccine-oriented posts. Notably, AstraZeneca recently announced the beginning of a late-stage study in the United States on its coronavirus vaccine candidate AZD1222, which it is developing in partnership with the Oxford University.
Airlines Focus on the Upgrade of Safety Measures: In a bid to restore the confidence of people in boarding flights, airlines are trying out various ways and means to promote safety. Evidently, Delta decided to block the middle seats and limit the number of passengers per flight through at least Jan 6, 2021.
Alaska Airlines decided to make travel almost entirely touch-free in a bid to attract customers. Spirit Airlines (SAVE - Free Report) also announced multiple safety measures on its flights like the usage of high-efficiency particulate air filters that capture 99.97% of particles and filter the surrounding atmosphere of contaminants every three minutes.
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