State Dept. lifts advisory on avoiding global travel
The State Department lifted its advisory against U.S. citizens traveling abroad amid the coronavirus pandemic. CFRA Vice President of Equity Research Colin Scarola joins Yahoo Finance's Kristin Myers to discuss what this means for the airline sector.
Video Transcript
KRISTIN MYERS: Well, the State Department has decided to lift an advisory from March on avoiding international travel amid the coronavirus pandemic. So for more on this and the outlook for the airline sector, we're joined now by Colin Scarola, vice president of equity research at CFRA. Colin, thanks so much for joining us.
So first, I have to hit this new news that we have coming in today-- the State Department lifting that advisory on international travel. Obviously, the airline industry has been hard hit throughout this pandemic. Do you think we're going to be able to see some sort of boost here when it comes to travel, thanks to this advisory? I mean, most of the world remains closed to the United States.
COLIN SCAROLA: Well, hi, Kristin. Thank you for having me. Yeah, I think the last point you touched on with a lot of the world still being closed to US travel and also just there still being a lot of fear in general about traveling while the pandemic is still kind of raging in the US, I think that's probably going to dampen any effect you'd see from that international travel restriction being lifted. So I don't see that as a major piece of news right now until the virus is more under control.
KRISTIN MYERS: What about domestic travel? We've been seeing, you know, Americans getting fairly restless. And yet, we had Delta, you know, cutting back some of their outlook going forward. I mean, so what is at all, in your mind, the outlook, just broadly across the airline sector over the next six months, as we're starting to see these cases start to surge yet again?
COLIN SCAROLA: Well, I think what you-- what I'm using to try to forecast the next six months is what happened after we kind of saw the-- that crest in virus cases in April. So you saw, after things kind of got under control in April and the economy started to reopen, you saw a lot of pent-up demand really flooding back in for the airlines for domestic travel. You know, we went from kind of to 5% of 2019 levels in April all the way up to around 30% or higher by 4th of July.
So it kind of looks to me like cases nationwide are not getting any worse right now. It seems like kind of the second wave maybe is stabilizing. So I'm thinking that we could start to see a pick-up in travel and maybe get back to around 50% of 2019 levels by the end of this year. At least I'm hopeful that we could do that.
KRISTIN MYERS: I want to get specific. You're pretty bearish on American Airlines. I mean, which of the airline companies are you liking going forward?
COLIN SCAROLA: Yeah, so American is-- I'm pretty bearish on that one because even in 2017 to 2019, when-- those were record demand year for airlines-- American wasn't generating free cash flow even in those kind of boom years. So coming into a really bad crisis with a lot of debt, I have a pretty bad outlooks for them long term.
Airlines that I think can do much better are, you know, ones you'd probably guess, like Southwest. They had a very conservative balance sheet. They have a lot of efficiency in their operation through using a single-aircraft model. So they have good operating margins. So I think you're seeing them also be the most aggressive through the downturn, you know?
They're planning to be at around 75% of their 2019 flying levels by the end of this year, and that's definitely one of the highest out there. So I think Southwest is in a good position because they're being aggressive. And when that demand does start to come back, I think they're going to be in the best position to gain market share here.
