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3 Airline Stocks Set to Take Off as Domestic Travel Resumes

3 Airline Stocks Set to Take Off as Domestic Travel Resumes
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By    |   Thursday, 04 June 2020 09:09 AM

Airline stocks in general have recently rallied on hopes that summer travel won’t be a total wipeout and its revival might signal a broader recovery in air traffic.

Cowen analyst Helane Becker expects passenger traffic to hit 400,000 a day by August—up from more than 260,000 now—and one million by December, Barron’s explained. “The industry may still be able to salvage some of the summer season,” Becker says.

Barron’s offered three of the best bets in the industry:

  • Southwest Airlines (LUV) looks like the safest bet in the sector. The low-fare pioneer built one of the strongest balance sheets heading into the crisis, holding virtually no net debt. UBS analyst Myles Walton raised his rating to a “buy,” arguing that Southwest offers the “best risk/reward” for a recovery.
  • Spirit Airlines (SAVE) also targets the leisure market, pitching ultralow fares to budget-conscious travelers. Spirit’s core markets, including Orlando, Fla., and Las Vegas, are likely to see more tourism this summer, as theme parks and casinos gradually reopen.
  • Delta Air Lines (DAL) is more of a play on a rebound in international and business markets. That won’t happen overnight. But Delta has one of the strongest balance sheets and cost structures of the legacy carriers. “As Europe reopens, there will be pent-up demand for international travel,” says Becker, who rates the stock “outperform,” with a $33 price target, implying 28% upside from its recent price.

Meanwhile, airlines cut domestic fares by an average 23% last month as traffic picked up from April lows, global airline body IATA said on Wednesday - warning that post-coronavirus discounting posed a further threat to profitability, Reuters explained.

Domestic passenger traffic rose 30% globally in May from a very low base in April, when much of the industry was brought to a near-standstill by the COVID-19 pandemic, IATA said in an online presentation.

But the uptick came at the price of fare cuts that airlines can ill afford on top of extra health measures and other new coronavirus-related costs.

"Airlines need cash because of the crisis and they're seeking to encourage passengers into seats by offering low fares," IATA Chief Economist Brian Pearce said.

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Airline stocks in general have recently rallied on hopes that summer travel won’t be a total wipeout and its revival might signal a broader recovery in air traffic.
airline, stocks, domestic, travel
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2020-09-04
Thursday, 04 June 2020 09:09 AM
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