What happened
Airlines, as expected, saw an increase in travel in the holiday season. But traffic levels were still well below historic highs and the industry continues to struggle. This is putting airline stocks under pressure on the first day of trading in 2021, with Spirit Airlines (NYSE: SAVE), Delta Airlines (NYSE: DAL), and American Airlines Group (NASDAQ: AAL) leading the push down.
And
The aviation industry and its investors will be happy to see 2020 in the books. The pandemic led to a dramatic drop in demand for travel and caused revenue to plummet.
The Transport Security Administration screened around 324 million passengers in 2020, a dramatic drop from the 824 million passengers screened in 2019. And although passenger count has increased in recent months and should continue to do so as As COVID-19 vaccines are distributed, the industry does not expect to see a recovery in pre-pandemic travel volumes for years.
Image source: Getty Images.
During the recently completed holiday season, more than 1 million passengers traveled daily on most days, some of the highest single-day totals since the pandemic began. But that is still well out of the 2 million to 2.5 million daily travelers registered a year earlier.
Investors on Monday are looking at the half-empty glass for holiday travel numbers. American is the most indebted of United States airlines and least able to withstand a prolonged slowdown, while Delta has taken a risky approach by blocking the middle seats – and in doing so, limiting revenue – even with most of its rivals having resumed filling their cabins.
Spirit is expected to be one of the first airlines to recover, thanks to its low-cost structure in the industry and its focus on leisure travelers who must return before business tickets. All airline shares have been auctioned in the past few months, in the hope of a recovery, and investors may be making gains today, with the end of the holiday high.
What now
The good news for airline investors heading for 2021 is that we now know what to expect in the industry. The bad news is that we won’t see a recovery anytime soon.
Airlines must have the financial resources to survive, but it will take years before they are positioned to thrive. Even if traffic returns above expectations, operators have taken on billions in new debt that will have to be paid off before focusing on expansion.
For those who have the patience and stomach to deal with turbulence, it is safe to buy from airlines. Just fasten your seat belt and be prepared for a long and arduous journey ahead.