It is a well-known fact that coronavirus cases in some parts of the United States are recording an alarming spike as a second wave of the dreaded contagion sweeps across the affected states. Notably, the nation registered 52,789 new cases on Jul 1, thereby crossing the 50,000 mark in a day for the first time since the COVID-19 outbreak.
However, the good news is that the spurt in cases following the re-opening of economy does not seem to have deterred investors. This can be gauged from the stellar performance of major indices in the June quarter, namely the S&P 500, the Dow and the Nasdaq composite.
Through this article, we try and examine the impact of the recent rising incidence of coronavirus cases on one of the worst-hit industries, which is the airlines. The fact that the Zacks Airline industry has plunged 24.5% since the beginning of March against the S&P 500 Index’s 4.8% gain highlights the severity of the pandemic blow to this key industry.
Air-Travel Demand in Comeback Mode
The above lackluster price performance of the airline industry was due to dwindling passenger revenues, the major component of the carriers’ top lines. Coronavirus being declared a pandemic by the World Health Organization on Mar 11 resulted in wide-spread travel restrictions with most countries placed under lockdown. As most people were confined to their homes, demand for air-travel and consequently passenger revenues touched a nadir. Due to flagging passenger revenues, leading airline companies like Delta Air Lines (DAL - Free Report) , JetBlue Airways (JBLU - Free Report) and Sprit Airlines (SAVE - Free Report) suffered heavy losses in the first quarter of 2020.
All the three above-mentioned companies currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, following the unlocking of U.S. economic activities and easing of travel restrictions, things are looking up for this vital industry. Evidently, many U.S. airlines came up with bullish updates as they witness a surge in new bookings. For instance, American Airlines’ (AAL - Free Report) domestic passenger count soared more than 100% in May from the April reading. Improving demand coupled with significant reduction in costs helped the company lower its cash-burn rate significantly. The same is anticipated to be zero by this year-end. Encouraged by this new-found demand growth, American Airlines expanded the seating capacity to 100% on its flights effective this July.
United Airlines (UAL - Free Report) plans to add nearly 25,000 flights in August, triple the size of its June schedule, as air travel demand (especially for leisure travel) improves steadily. Moreover, Southwest Airlines (LUV - Free Report) has been seeing recovery in passenger demand since early May as a result of which new passenger bookings have been outpacing trip cancellations.
Further, the recent uptick noticed in screening the number of people by the Transportation Security Administration implies the rebound in air travel. Notably, more than 625,000 people passed through TSA checkpoints at U.S. airports on Jun 29. In fact, this was the first time that the numbers exceeded 25% of pre-COVID levels since Mar 19. The measures adopted by various airlines toward promoting safety and cleanliness also contributed to upbeat consumer confidence in flying without the fear of contracting the infection For example, United Airlines is ensuring enhanced aircraft sanitization, touch-less baggage check-ins and usage of filters to circulate air and elimination of up to 99.9% of airborne particles. Customers are required to confirm that they do not show symptoms of COVID-19 and are ready to wear a mask onboard. Non-compliance with wearing a mask will temporarily repeal the customer’s travel privileges by the airline.
Due to the recent revival in passenger traffic, the Zacks Airline industry has gained 6.9% in the past month.
The above article clearly suggests that the recent relapse in cases across specific regions of the country could not dissuade people from opting for air travel. Although only time will tell whether this resurgence in the airline space is sustainable or not, the retrieval in air travel of late despite the pandemic overhang is certainly an impetus for this not-so-long-ago flourishing space.
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