Airline Stocks Buoyed by Easing Travel Restrictions, State Aid
May 26 2020 - 9:12AM
Dow Jones News
By Anna Isaac
Global airline stocks rallied following signs of more government
support for the aviation sector and the loosening of travel
restrictions in some countries.
Shares in Southwest Airlines Co., Delta Air Lines Inc., United
Airlines Holdings Inc. and American Airlines Group Inc. rose over
5% in premarket trading Tuesday. In Europe, British Airways' parent
International Consolidated Airlines Group SA rose almost 20% in
London.
U.S. airline stocks have soared since mid-May on signs that
people have cautiously started to book flights again and are
reviving leisure travel plans for the summer. Financial support
from governments for beleaguered carriers like Germany's Deutsche
Lufthansa AG, and easing of travel restrictions in Europe and parts
of Asia, have further buoyed sentiment this week.
"Opening up is coming more quickly than anticipated by some
investors," said Seema Shah, chief strategist for Principal Global
Investors. Still, "the sector looks cheap, but it's cheap for a
reason," Ms. Shah cautioned.
German travel operator TUI AG plans to resume overseas flights
and holidays by the end of June, Chief Executive Officer Fritz
Joussen said in an interview with the Rheinische Post over the
weekend. Its shares soared 39% in London on Tuesday, leading gains
among European stocks.
Lufthansa rallied 6.8%, extending its two-day gain to almost
15%, after the German government and the carrier said Monday that
they had agreed on a EUR9 billion euro ($9.81 billion) bailout
deal. If the package is approved, Lufthansa will join other
European airlines including Air France KLM and easyJet PLC in
receiving financial support from governments.
For months, strict travel restrictions intended to try to
contain the spread of novel coronavirus have seen the world's
largest airlines ground large parts of their fleets and lay off or
furlough swaths of their workforces. Now, signs that borders might
be loosened to allow some tourism and business travel, along with
financial support from governments, are offering tentative hope for
the sector.
Spain on Monday said it plans to lift a two-week quarantine on
foreign visitors from July 1, a move that is likely to encourage
tourists to visit the country over the summer. That came after
Germany said last week that its border controls would be lifted
June 15.
"It would be hard to argue that traffic is going to come back
and normalize in the next few months, but there are signs that we
may be past the worst," said Adrian Yanoshik, an analyst covering
U.S. and European airlines at Berenberg Bank. "These companies are
pretty distressed, so anything that improves their short-term
solvency is going to be read positively."
Daily passenger figures from the Transportation Security
Administration have shown an uptick in the number of travelers at
U.S. airports from the lows hit in April, marking yet another
encouraging sign for investors, analysts said.
Last week, some of the biggest U.S. carriers said that bookings
had begun to trickle in, and cancellations have slowed. United
Airlines said it would restore some capacity in July, while
Southwest said its flights are carrying more people than it had
previously anticipated. Despite the uptick, demand is still a
fraction of what it typically would be.
"Airlines will survive, they will recover, but it will take some
time. They will burn a lot of cash in this crisis," said , an
analyst covering industrials and airlines at Commerzbank Research.
"For investors, the main focus will be on their financial strength,
their rate of cash burn, and what flying looks like when we get
back life without lockdown rules."
--Malte Schulz
Write to Anna Isaac at anna.isaac@wsj.com
(END) Dow Jones Newswires
May 26, 2020 08:57 ET (12:57 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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