Shares of U.S. airlines may again decrease due to the sharp growth of cases COVID-19, after they rose slightly on optimism regarding the vaccine. However, this does not mean that investors should avoid all of the shares of airlines.
Shares of most major U.S. airlines rose last week against two good news: expectations of a vaccine against coronavirus (perhaps as early as the end of the year) and the return to flight of Boeing 737 Max aircraft that were parked more than 20 months of investigations.
Shares of American Airlines Group (AAL) rose more than 6% over the past seven days, Delta Air Lines (DAL) at 2% and Alaska Air Group (ALK) rose by 5.43%. Shares of United Airlines Holdings (UAL) declined slightly for the week, but rose by 2.6% at the close of trading on Monday.
Statistics of the pandemic worsens
At the same time, the U.S. government announces a new wave of morbidity COVID-19, which can be even worse than the original outbreak that swept the country this spring.
Since mid-September the number of cases increased by almost five times the number of hospitalizations has increased almost threefold, and the mortality rate nearly doubled.
Last week the US Centers for control and disease prevention urged Americans not to travel on Thanksgiving Day and limit contacts.
Taken together, this may slow down the recovery of demand for travel and encourage people to stay at home in the traditionally active tourist season. Due to the rising cases COVID-19 in many other countries, the demand for international travel may also drop.
The airline noted a decrease in demand
The number of travelers passing through checkpoints the TSA (transportation security Administration USA) remained stable for about the past six weeks, after two months of gradual improvement.
Despite the lack of consistent growth in the recent statements of most airline executives optimistic about further recovery in travel demand.
But on Thursday, United Airlines filed following an application with the SEC (Commission securities and exchanges): “Over the last week ending 18 November 2020, the recent surge of cases COVID-19 there was a decrease in the number of airline reservations and a surge of cancellations”.
On the same day, Alaska Air reported that the major loss of cash will probably be gradually increased from October to November.
“We believe that the renewal of the restrictions by the authorities of many States and local authorities will negatively affect demand in the near future,” the company said.
Guide American Airlines recognized similar trends at the industry conference.
All of this suggests that a strong recovery is unlikely in the coming weeks, the dynamics can again be weakened in the first two or three months of 2021.
Some U.S. airlines situation better?
However, if to consider the advisability of purchasing or retaining shares of airlines in its portfolio, worth paying attention to, at least, on two things: what market is the airlines (international and domestic-only or international) and how hard is the recovery process for a particular company.
Airlines with strong cash balance no need to worry too much about short-term trends. So, Alaska Air has completed the last quarter with nearly $3.8 billion of resources available, and manageable amount of debt and obligations of $5.4 billion While it is expected that in November the company will lose $125 million – $150 million, compared with $97 million in October, Alaska can survive such losses for a few months.
American Airlines has a larger balance of $8.3 billion, however, and much spectacular debt a $41,2 billion at the end of the third quarter. The company’s initial forecast for the fourth quarter expected loss of another $2.5 billion this year, the airline issued stock several times, but it covered only a small part of the expenses of the company. For American Airlines, every extra dollar spent in the coming months, will hamper the recovery.
American Airlines and United Airlines are faced with two additional problems. First, their focus is largely on business trips, and most analysts predict a significant long-term decline of this market segment, with demand for business travel will recover very gradually. Secondly, both airlines, but especially United, are largely connected with international flights is another market segment that is expected to be slow to recover.
Thus, the recent drop in demand for air travel is not the reason for the sale of all the shares of airlines. Today, however, investors seem better to own a more secure stock of this industry, such as Alaska Air, while avoiding stocks of companies with big problems – such as American Airlines and United Airlines.
The Motley Fool