After excitement built up over the re-opening of the economy worldwide, airline stocks returned over 100% in some cases, only to give back some of those gains in the last week. Will this pullback continue to the downside for longer?
Speculators have to contend with two fundamental headwinds. First, at a macro level, traders need to bet on the economy’s reopening picking up pace. If the U.S. practices disciplined, social distancing measures, and rigorous testing on most of its population, infection rates may stop rising.
Yet the relaxed policies on and disregard of social distancing will lead to increased coronavirus cases. This will then threaten airline passenger traffic numbers.
United (NASDAQ:UAL) and American Airlines (NASDAQ:AAL) gave back around half of its gains on fears that the traffic rebound will stall. These firms cannot afford to operate at low capacities. Plus, it must limit flight capacity to put distance among passengers. Protective gear, hand sanitizers, and masks will raise costs slightly.
Investors need to know at what level these airlines may operate to reach breakeven levels. Burning cash daily is not sustainable. The government may bail these airlines but shareholders will still get wiped out.
Continue watching airline stocks for a sustained recovery. The selling pressure may accelerate if stocks fall overall.
