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Airlines celebrate, send stock markets that fly higher



Investors wasted no time getting into the spirit of the summer holidays on Wall Street as Monday showed solid gain even in the face of growing uncertainty.

COVID-19 cases have soared in the United States and some fear that failure to contain the epidemic may lead to new measures such as the closure of businesses. However, market participants focused on more positive news by sending the Dow Jones Industrial Average (DJINDICES: ^ DJI), S&P 500 (SNPINDEX: ^ SPX), is Nasdaq Composite higher.

Stock exchange today

Index

Percentage change

Change point

Dow

+ 2.32%

580

S&P 500

+ 1

.47%

+44

Nasdaq Composite

+ 1.20%

117

Data source: Yahoo! Finance.

Among the best performances on the market on Monday were airline stocks. Although they have been quite sensitive to coronavirus-related news, the optimism that has driven the broader market upward has also helped improve their prospects. Also, good news from Boeing (NYSE: BA) it could be the end of at least one painful chapter for the industry.

How the airlines went

Among the main carriers, Southwest Airlines (NYSE: LUV) led the way higher with gains of almost 10%. American Airlines group (NASDAQ: AAL) was not far behind with an 8% increase e United Airlines Holdings (NASDAQ: UAL) is Delta Airlines (NYSE: FROM) followed suit with earnings of 7% and 6% respectively.

The Southwest in particular benefited from favorable comments from Goldman Sachs analysts. The Wall Street giant updated its Southwest view from “sell” to “buy” and raised its price target by $ 12 per share to $ 47. Goldman’s view on the sector is mixed, with analysts who now expect it will take until 2023 for a full return to pre-coronavirus conditions for airlines. Yet Southwest has a solid balance sheet and its emphasis on domestic travel gives it a competitive edge over the more internationally focused Americans, Delta and United. There, restrictions on international travel could last longer, prolonging the recovery period.

More generally, investors basically like what they are seeing. Traffic numbers continue to rise and this has high hopes that load factors will follow suit. Some carriers have even begun to relax their previous anti-coronavirus measures, no longer requiring the average seats to remain empty. American plans to book full flights as soon as July 1st and United also plans to start early with three seats.

737 Max 8 white planes on an airport taxiway, short of an ILS marker

Image source: Boeing.

MAX flight

Airlines may also have been relieved of favorable news from Boeing, whose shares rose 14%. The aerospace manufacturer has obtained approval to begin the test flights of the 737 MAX long-land aircraft, with its first flight to certification that occurred today.

From Boeing’s perspective, the benefits of having the MAX flight are obvious. What is less clear, however, is how much demand there will be from major air carriers. Airlines grounded huge portions of their existing fleets during the coronavirus crisis and it will take significant increases in passenger traffic only to return to full capacity based on existing holdings.

Those airlines that are in financial condition to take over may still choose to do so. Increased efficiency and other benefits drove high demand for the 737 MAX before multiple accidents forced its grounding. However, with airlines facing severe financial pressures, it is dangerous to believe that all deliveries will take place as previously planned.

Airlines seem healthier today and conditions seem to improve. But there is still much uncertainty about airline stocks and investors need to be prepared for a bumpy ride.




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