4. Summer travel is ending, and so might airlines' modest recovery
Axios' Joann Muller and I write: The peak leisure travel season is almost over, and without conferences or events to woo business travelers this fall, the airline industry's modest recovery could quickly lose altitude.
Why it matters: Investors have been snapping up airlines as bargain stocks lately — encouraged, in part, by reports of potential progress toward a coronavirus vaccine that could boost depressed air travel.
What's happening: The reopening trade has been very popular since the start of August, with hotels like Marriott and Hyatt each gaining 12%, airline stocks represented by the JETS ETF up 9% and MGM Resorts surging 30%.
- They have far outpaced the S&P 500's 3% gain during that time and even the red hot Nasdaq's 4%.
Investors seem to be betting that furloughs and other deep cost cuts — and perhaps another round of federal aid — will put airlines in decent shape for financial recovery when air travel picks up again.
- "Companies now sit at a lean and mean position that you rarely get to except after a depression," Jim Paulsen, chief investment strategist at the Leuthold Group, tells Axios.
- "CEOs are hunkered down for the worst and have virtually no costs on the books — that's a recipe for profitability on the bottom line that’s not appreciated by Wall Street."
Yes, but: Short sellers — investors who bet that companies' stocks are overpriced and profit when they fall — are lining up to bet against the airlines, with $95 million of new short sales over the last week, according to data firm S3 Partners.
- Airline shorts are up $3.15 billion for the year.
By the numbers: According to trade group Airlines for America's data:
- As of mid-August, domestic passenger volumes are still down 70% from a year ago; international travel is down 88%.
- The average domestic flight is 47% full, vs. 88% a year earlier.
- About 717,000 people passed through TSA checkpoints per day in mid-August, vs. 95,000 in mid-April and more than 2 million per day pre-COVID.
- Airlines' operating revenues plummeted an average of 86.5% in the second quarter.
Almost all of those who are flying are leisure travelers — people visiting friends and family, or taking domestic vacations after being cooped up all spring.
Bank of America analysts are sounding a note of caution: "We are only a few weeks away from moving out of peak leisure travel season, and into a more business-heavy period."
- "With corporate volumes not moving meaningfully off of trough levels, we believe there could be risk to domestic volumes as we move into September."
What to watch: The recovery will be bumpy, airline executives warn and a vaccine won't immediately end the pandemic.
- "I think it's probably two to three years," Delta CEO Ed Bastian told "Axios on HBO" in June.