Airline stocks are taking flight after the approval of the Covid-19 vaccine. The vaccine rollout has the travel industry preparing for a rebound in demand this year. The U.S. Global Jets ETF’s (NYSEARCA:JETS) three-month returns are up roughly 24%.
Moderna’s (NASDAQ:MRNA) and Pfizer’s (NYSE:PFE) Covid-19 vaccine candidates were given the green light by the U.S. Food and Drug Administration last month. The vaccines have high efficacy rates, regardless of the recipient’s race, age and gender. Therefore, investors are giving tech stocks a break and are now turning their attention toward travel stocks.
Here’s a look at seven airline stocks rebounding well amid the positive vaccine news:
- American Airlines (NASDAQ:AAL)
- Delta Airlines (NYSE:DAL)
- Hawaiian Airlines (NASDAQ:HA)
- United Airlines (NASDAQ:UAL)
- Southwest Airlines (NYSE:LUV)
- Copa Airlines (NYSE:CPA)
- Volaris (NYSE:VLRS)
Airline Stocks to Buy: American Airlines (AAL)
American Airlines was among the airline stocks that managed to stick the landing in the past couple of months. AAL stock generated an impressive 24% return in the past three months, despite burning through heaps of cash. Over the years, the company has proven to be a survivor and will march along toward meaningful recovery this year.
Needless to say, it’s been tough for airliners such as American in the past year. Its third-quarter report shows that it generated a $1.3 billion net income in 2019 compared to a $6.7 billion loss last year.
Moreover, its debt levels have shot up by over 600% in the past year. However, with the return of the moneymaking Boeing 737 MAX and the company’s effective belt-tightening measures, expect promising things ahead. With a more conducive business environment, the company should have enough cash flows to deal with its debt burden.
Delta Airlines (DAL)
The Covid-19 crisis has left deep scars on airliners, but Delta Airlines is arguably the best-positioned company in the sector. The Atlanta-based airline has executed its strategy effectively and is set for a significant rebound this year. DAL stock is up 26.6% in the past three months.
Delta posted a net loss of approximately $12.4 billion last year, its first annual loss since 2009. However, its fourth-quarter results show that it has nearly halved its cash burn and expects to be profitable this summer.
Moreover, it ended the quarter with $16.7 billion in liquidity. Delta’s best-in-class management effectively limited costs during the crisis, which has put it in a great position to bounce back from the crisis.
Hawaiian Airlines (HA)
Hawaiian Airlines was hit especially hard by the pandemic. Its quarantine requirements virtually killed tourist demand. Instead, it operated a minimal schedule supporting only essential travel and cargo demand. This is why HA stock is down 32% in the past year.
Revenue has tanked significantly throughout the year, witnessing double-digits in the past few quarters. However, the company has now removed the 14-day self-quarantine restrictions. Moreover, it has done exceedingly well in controlling its expenses and managing its debt levels.
United Airlines (UAL)
United Airlines was among the first companies to sound the alarm about the devastation brought on by the pandemic. That has been evident in the airliner’s dismal earnings results in the past few quarters, in which revenues dropped by double-digits. However, in the past few months, upon the vaccine’s news, UAL stock is back to winning ways.
The company is taking a conservative path to recovery, with its primary goal being to reduce its cash burn significantly. It aims to reduce its fourth-quarter cash burn to $15 million, which is a major achievement considering how it averaged $40 million a few months ago.
The airline had roughly $19.4 billion in liquidity and a cash balance of $13.8 billion in the third quarter’s conclusion. Hence, it is in a great position to take advantage of the steady growth in demand.
Southwest Airlines (LUV)
Southwest Airlines has the most pristine balance sheet out of all its competitors, which has come in more than handy this year. As a result, it is among the companies that have done relatively well in the stock market in the past year. Its three-month returns relative to the S&P 500 are at an impressive 18%.
The company has done well to limit its cash burn through its cost-management efforts. It now estimates cash burn to be roughly $12 million per day in the fourth quarter. It expects demand to recover sluggishly but should benefit from the 37 MAX being back in service and improvements in leisure demand. Moreover, its cash balance is at an impressive $14.6 billion, which is significantly higher than most of its peers.
Another positive for LUV stock is that it’s undervalued based on forward estimates at this point.
Copa Airlines (CPA)
Central-American airline company Copa, like other airline stocks, has had it remarkably tough in 2020. Revenues have nosedived in the past few quarters, with reductions as high as 97.8%. However, its niche position in the Latin American market and its low-cost structure makes CPA stock an interesting play this year.
Copa’s management stated that by December 2020, it was expecting a 40% uptick in demand. Such numbers are quite encouraging, considering how there was little or no demand for most of 2020. Its low-cost structure has enabled it to preserve its liquidity with roughly $866.4 million in cash equivalents.
Moreover, its debt levels are relatively low at $1.49 billion. With the 737 MAX recertified and recovery in demand, I expect CPA stock to continue to grow in the coming months.
Mexican low-cost carrier Volaris was the most successful airline company in 2020. It finished 2020 with more deployed capacity than the previous year. Moreover, it is estimated that revenues will be higher in 2021 than in 2019, with record net margins in the second half. VLRS stock’s three-month return is at an impressive 29%.
Volaris has been an anomaly in the airline sector, with the fastest recovery among its peers. Its results in December show that it operates at 102% capacity with a load factor of 78.5%. Its domestic market share grew 11% from January to November, and its international market share increased by 32% in the same period.
Following its equity raise of $162 million, it now has a cash balance of over $350 million. Therefore, with a strong foundation in 2020, expect a much stronger 2021 for Volaris.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above.