Airlines prepping to return to skies
Analysts doubt speedy recovery for the industry
The skies are clearing up a bit for airlines as states ease lockdown measures and travelers slowly return to airport check-in lines.
After a pronounced slump in air travel in the spring, airlines are adding back flights as they hope to salvage some lost revenue during the key summer travel season. As of Monday, investors had driven shares for the major airlines back to their early March levels, before the coronavirus forced the U.S. economy to a standstill.
The airline industry has essentially been grounded for months after a plunge in passenger demand forced American Airlines, United Airlines and others to slash flight schedules. They were among the hardest hit companies as the coronavirus abruptly shut down overseas markets and then pushed the U.S. into a pandemic-induced recession. Even with the recent surge in airlines shares, the NYSE Arca Airline index remains well below its 2020 high from mid-February, when restrictions on international travel began to take hold.
Warren Buffett’s Berkshire Hathaway dumped all of its holdings in the major airlines as revenue dried up. Air travel had plummeted to levels unseen since the early years of the commercial jetliner days in the 1950s. The industry took a $25 billion bailout from the U.S. government to help shore up balance sheets as it grounded flights and cut staff.
Analysts don’t expect passenger traffic to get back to 2019 levels anytime soon. Last week, American Airlines said that next month it will operate 55% of the U.S. flights that it ran in July 2019. United Airlines will run a more modest 30% of its schedule compared with a year ago. But for investors, those small signs of recovery were enough to warrant jumping back into airlines stocks.
Shares of American Airlines surged 41% the day it announced the additional capacity. Meanwhile, vacation destinations in Florida, the Gulf Coast and mountain states are seeing some of the strongest resurgence in demand. United plans to resume about 130 nonstop routes in July that it had suspended.
“While it is unlikely that we are out of the woods on COVID-19, improving passenger flow numbers suggest some consumers’ desire to travel is outweighing COVID-19 concerns,” said Citi analyst Stephen Trent, in a note to investors.