American Airlines (NASDAQ:AAL) took off like a rocket ship last week, trading to above $20.00 and up from the $10.00 bottom. The strong volume suggests that short-covering lifted the stock.
Fundamentally, nothing changed. Markets realized that bankruptcy risks for AAL stock and others like United (NASDAQ:UAL) and Delta (NYSE:DAL) are off the table.
Investors should realize the sector never really faced bankruptcy risks. The government would have done whatever it took to prevent a collapse in the business.
Rising Flight Traffic
Higher bookings give the sector a strong glimmer of hope. Yet planes cannot run at 100% capacity on each flight. It must maintain social distancing among passengers and crew.
Plus it must spend significantly more to clean the planes each time after it lands. This will increase costs. For now, investors will accept smaller daily losses. It needs to see the trend of increasing demand over the months ahead.
Your Takeaway
The financials in airlines are still a mess, with high debt and daily cash burn. The airline investment is still a speculative one. It is completely dependent on tourism, business travel, and cargo delivery demand increasing in the next few quarters.
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