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Airlines Take Off on Spike in Travel Demand: 3 Stocks on Radar

Tirthankar Chakraborty
·5 mins read

Airline stocks soared on Sep 14, primarily led by Delta Air Lines, Inc. DAL, on promising travel demand data. The Dow Jones Transportation Average ticked up 0.5%, with all of its six airline components gaining traction.

Delta Airlines’ stock rose 3.5%, while other Dow Transport components, including Southwest Airlines Co. LUV, American Airlines Group Inc. AAL, JetBlue Airways Corporation JBLU, Alaska Air Group, Inc. ALK and United Airlines Holdings, Inc. UAL, saw their shares rise 2.9%, 2.4%, 2.4%, 2.9% and 1.9%, respectively. Elsewhere, shares of Spirit Airlines, Inc. SAVE, Hawaiian Holdings, Inc. HA and Allegiant Travel Company ALGT increased 3.2%, 2.1% and 2.2%, respectively.

The gains came after data from the Transportation Security Administration (TSA) showed that, on average, 738,038 travelers went through the TSA checkpoints every day for the week ended Sep 13. In fact, that’s more than the 715,145-daily average of the previous week that included the Labor Day holiday weekend. Notably, Labor Day holiday weekends always see a boost in travel demand. And this year, 3.36 million people went through TSA checkpoints over the weekend, easily surpassing the 2.68 million who traveled during the long Jul 4 weekend, and 1.21 million of travelers for the Memorial Day weekend.

What’s more, August was the fourth successive month that saw daily average of travelers improving from the previous month. In each day of August, an average of 700,260 people went through the TSA checkpoints, up from an average of 669,057 people a day in July and well above the COVID-19 low of 109,567 a day in April.

The pandemic did deal a heavy blow to the airline industry, with market pundits expecting the path to recovery to be tough and long. Some even believed that it may take at least two years or longer for the aviation industry to bounce back to pre-COVID levels. But thankfully, things have started to look up for airlines of late on rise in travel demand.

But despite the coronavirus crisis, the U.S. airline industry hasn’t faced any bankruptcy. It’s is pretty unusual as the industry has time and again seen Chapter 11 bankruptcy protection filings whenever broader economic growth was disrupted.

However, the U.S. airline industry dealt with the coronavirus-marred economic crisis in a far better manner, and has been able to raise nearly $50 billion in debt and equity financing along with a similar amount in government financing. Airline stocks received a boost after President Trump provided a bailout package, and also removed overseas travel restrictions for U.S. citizens.

3 Airline Stocks to Keep an Eye On

Americans’ return to the skies last week and the government’s supportive stance have enhanced things for airline stocks.

But it’s important to stay away from beaten-down names, and instead focus on quality companies that can make the most of the rise in travel demand. Here’re three of them that are in pretty decent shape, fundamentally. These stocks currently possess a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United Airlines’ recent cost-cutting measures to offset coronavirus-related adversities bode well for the company. The company took several cost-control measures like freezing hiring (except for crucial roles), delaying salary increases and giving employees the option to apply for voluntary leave or early retirement.

The carrier is also trying to preserve cash by cutting down on capital expenditures and operating expenses.

American Airlines is widely expected to increase capacity owing to rising air travel demand. Moreover, the company has taken several initiatives to reduce costs, which helped it bring down its cash-burn rate.

The company’s cash-burn rate in the June quarter was nearly $55 million per day, comparing favorably with its previous forecast of $70 million per day. By the end of 2020, the carrier hopes to reduce its cash-burn rate to zero.

Allegiant Travel Company operates low-cost passenger airlines. It focuses on linking leisure travelers in small and medium sized cities to world-class destinations.

Prior to the coronavirus outbreak, Allegiant Travel had an impressive record of dividend payments and share repurchases. Most importantly, the company has modernized its fleet. Allegiant’s fleet size at the end of 2019 was 91, indicating an increase from the 2018 reported figure. The transition to an all-Airbus fleet, completed way back in November 2018, has enhanced Allegiant’s fuel efficiency.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Allegiant Travel Company (ALGT) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
 
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