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Airlines End 2020 on a Solid Note: More Rally Awaited in 2021?

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The airline stocks had an impressive run on the bourses in the latter part of 2020, notwithstanding the surge in coronavirus cases across the United States. Evidently, the Zacks Airline industry gained 26.9% in the final three months of 2020, outpacing the S&P 500 Index’s 11.7% rally.

The rising coronavirus cases including the recent discovery of the new COVID variant failed to deter the enthusiasm of passengers this holiday season. A slew of safety measures taken by the airlines also worked in favor of the gradual uptick in leisure air-travel demand, which is backed by the Transportation Security Administration (TSA) data. The TSA reported that more than 1 million passengers passed through its checkpoints on five of the six days in 2020 post Dec 25.

With people continuing to resort to air travel, the first Sunday of 2021 saw in excess of 1.3 million passengers being screened by the TSA, the highest reading since the onset of the pandemic. Here the million-dollar question is whether this recovery in leisure travel demand will boost the aviation stocks throughout 2021 as the concerned companies aim to make a comeback from a horrendous setback in 2020, during which passenger revenues plummeted to cause huge losses for the airlines.

2021: Will the Year Likely See More Air Traffic?

The greatest source of upside for the airlines this year is likely to be the availability of vaccines to combat the coronavirus. While the vaccine co-developed by Pfizer (PFE - Free Report) and BioNTech is already approved for emergency use in many countries including the UK and the United States, Moderna’s vaccine won the regulatory nod only in the United States. Immunization programs with the approved vaccine shots are already underway in the concerned countries. Of late, AstraZeneca’s (AZN - Free Report) approved coronavirus vaccine is being administered in the UK.

The year 2021 is expected to paint a rosier picture for the airline space in view of the above-approved vaccines and many more, which are currently in various stages of development and are likely to be commercially available during the course of the year.

The availability of the vaccines is a major boon to the airline companies, which are harboring hopes on the people’s return to air travel after being vaccinated. This, in turn, should drive passenger revenues, which form the bulk of the airlines’ top lines.

The wave of optimism can be gauged from Delta Air Lines (DAL - Free Report) CEO Ed Bastian’s expectation that the carrier will achieve a positive cash flow by this spring.Per Bastian, the company is likely to “experience two distinct phases during the next 12 months. The first phase will be quite similar to 2020. The second phase will begin only when we reach a turning point with widely available vaccinations that spur a significant return to travel, particularly business travel.”

Similar bullish sentiments were echoed by Alaska Airlines president Ben Minicucci, who was quoted saying: “We’re confident that things will get better in the second quarter and definitely in the second half of the year.” Notably, Alaska Airlines is the wholly-owned subsidiary of Alaska Air Group (ALK - Free Report) , which currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The outgoing President Donald Trump’s decision to sign the $900 worth stimulus bill is another positive for U.S. airlines, which will get a $15-billion grant under the new relief package. Following this fresh aid, airlines including the likes of United Airlines (UAL - Free Report) and American Airlines (AAL - Free Report) which already laid off some of their workers, will have to call them back.

Per a FOX Business report, Southwest Airlines’ (LUV - Free Report) CEO Gary Kelly stated that the pay cuts or furloughs are no longer anticipated for 2021 at this Dallas-based carrie owing to the new aid.The fear of job loss is therefore put on the back-burner for now even though air-travel demand is likely to remain suppressed at least in the first few months of 2021 as mentioned above.

The International Air Transport Association’s (IATA) forecast for 2021 also hints at the supposed improvement of the airlines in the current year . IATA predicts  the aviation industry’s global loss to narrow to $38.7 billion in 2021 from $118.5 billion anticipated in 2020. Overall revenues are likely to be $459 billion, up $131 billion from the 2020 expectation. IATA anticipates 2.8 billion people flying in 2021, one billion more than the 2020 projection.

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