U.S. markets open in 5 hours 22 minutes
  • S&P Futures

    4,537.00
    -4.75 (-0.10%)
     
  • Dow Futures

    35,475.00
    -5.00 (-0.01%)
     
  • Nasdaq Futures

    15,417.75
    -61.00 (-0.39%)
     
  • Russell 2000 Futures

    2,297.10
    +3.00 (+0.13%)
     
  • Crude Oil

    82.48
    -0.02 (-0.02%)
     
  • Gold

    1,794.30
    +12.40 (+0.70%)
     
  • Silver

    24.42
    +0.25 (+1.06%)
     
  • EUR/USD

    1.1646
    +0.0015 (+0.13%)
     
  • 10-Yr Bond

    1.6760
    0.0000 (0.00%)
     
  • Vix

    15.29
    -0.20 (-1.29%)
     
  • GBP/USD

    1.3779
    -0.0016 (-0.12%)
     
  • USD/JPY

    113.9200
    -0.0680 (-0.06%)
     
  • BTC-USD

    63,451.68
    -1,864.46 (-2.85%)
     
  • CMC Crypto 200

    1,506.99
    -27.65 (-1.80%)
     
  • FTSE 100

    7,213.85
    +23.55 (+0.33%)
     
  • Nikkei 225

    28,804.85
    +96.27 (+0.34%)
     

U.S. Aviation Stocks Gain After Update on Merk's COVID-19 Pill

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

After being scarred by the spread of COVID-19 in 2020, airline stocks had something to cheer about when 2021 came along. The availability of vaccines played a key role in buoying air-travel demand. Evidently, operating revenues surged in excess of 100% in the June quarter of this year for most U.S. carriers on the back of strong passenger revenues.

However, the rapid transmission of the highly contagious Delta-variant in many countries including the United States dampened passenger revenue growth. As a result, the majority of U.S. carriers including the likes of United Airlines UAL, Alaska Air Group ALK, Southwest Airlines LUV and JetBlue Airways JBLU issued bleak forecasts for the September quarter of 2021. Delta Air Lines DAL, currently carrying a Zacks Rank #3 (Hold), will be the first carrier to release earnings results for the third quarter on Oct 13.

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

Then Why the Rally?

Amid this depressing scenario, airline stocks got a boost on Oct 1 with the release of positive interim data from a phase III study on Merck MRK and partner Ridgeback Biotherapeutics’ oral antiviral medicine molnupiravir. Data from the interim analysis showed that the medicine reduced the risk of hospitalization or death by approximately 50% in non-hospitalized adult patients with mild or moderate COVID-19. Following the highly impressive data, Merck stopped recruitment in the study and plans to soon file an application for Emergency Use Authorization to the FDA.

With hopes pinned on a medication finally being approved for the dreaded COVID-19 disease, the stocks in the airline space naturally moved northward, backed by the positive update on the antiviral COVID treatment. The magnitude of the rally can be understood by the uptrend exhibited by a few key industry participants like Delta Air Lines, American Airlines, United Airlines, Southwest Airlines, Spirit Airlines SAVE and Alaska Air Group, which were up 6.5%, 5.5%, 7.9%, 5.7%,3.9% and 6.1%, respectively, on Oct 1. The NYSE ARCA Airline Index gained 5.8% on the same day from the Sep 30 closing.

Apart from the update on Merck’s candidate, positive tidings for airlines came from Delta. Per a Reuters report, Delta’s management confirmed stabilization and improvement of the airline’s ticket sales. The carrier now expects third-quarter 2021 revenues to fall within its initial guidance of a 30-35% decline from the comparable period’s tally in 2019. Due to rising coronavirus cases, Delta previously estimated total adjusted revenues at the lower end of the guided range. Adding to the enthusiasm, Delta’s chief executive officer ED Bastian was quoted saying, "Business traffic is growing back in the U.S." He further added that domestic travel bookings are likely to surpass the 2019 levels next year.

Is the Rally Sustainable?

After Friday’s impressive performance on the bourses, the question that is very likely to crop up on an airline investor’s mind is whether the upsurge is a one-off event or it is really viable. While it is impossible to predict the exact future price performance of the stocks, there are factors that bode well for the airline stocks.

The impending holiday travel season might lead to a significant uptick in air traffic. Moreover, the decision of the U.S. administration to ease international travel restrictions from next month should also boost total revenues as a result of more international traffic. Also, with the Delta mutant affecting mostly the unvaccinated population in the country, the focus of the Biden administration to get employees of the major U.S. airlines vaccinated by Dec 8, 2021 is also commendable.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
 
Merck & Co., Inc. (MRK) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.