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Why Airline Space is Upbeat Despite Spike in US Coronavirus Cases

Coronavirus cases are registering an alarming spike once again in some parts of the United States. This is in line with the prediction of many experts, who had anticipated a surge with renewed intensity during fall. The United States reported a record number of daily coronavirus infections over the past few days.

By now investors are well aware that the airline industry is hit really hard by the coronavirus pandemic due to dwindling air-travel demand, which crippled passenger revenues, the main contributor to the airlines’ top lines. However, despite the current jump in the coronavirus cases in the country, U.S. airline stocks are exhibiting an uptrend. Evidently, the Zacks Airline industry has appreciated to 18.4% on a month-to-date basis.

Let’s delve deeper to unearth the reasons behind this upswing despite the rising coronavirus cases.

It’s no secret that the entire world is waiting with bated breath for a vaccine to combat this health peril. Airline companies are no exceptions. They are hoping that once the vaccine is made available, it will encourage people to resort to air travel without the fear of infection looming on. This, in turn, should boost passenger revenues.

To this end, Pfizer PFE and its German partner BioNTech came up with the highly satisfactory news last week when their candidate, currently undergoing phase III trials, was found to be more than 90% effective in preventing the coronavirus disease, per the first interim efficacy analysis.

Airlines received another positive vaccine-related news yesterday when Moderna’s MRNA vaccine candidate for treating COVID-19 demonstrated 94.5% efficacy in a phase III study. Notably, Moderna is developing an mRNA-based vaccine, mRNA-1273, in collaboration with the National Institutes of Health. Another reassuring aspect was that the interim analysis did not demonstrate any significant safety concerns.

Naturally, the announcement from Moderna lifted the airline stocks as was the case with the upbeat Pfizer update last week. As a result of the favorable update on Moderna’s vaccine candidate, the NYSE ARCA Airline Index gained 5.7% on Nov 16.  The magnitude of the rally can be understood by the upward curve displayed by a few key industry participants like Delta Air Lines DALAmerican Airlines AALUnited Airlines UALSouthwest Airlines LUV and Alaska Air Group ALK, which were up 4.2%, 4.5%, 5.2%, 3.9% and 5.6%, respectively, in Monday’s trading.

While the optimistic announcements on the coronavirus vaccine candidates are the primary catalysts for the upswing in stock prices of the airline stocks, the gradual improvement in demand for leisure travel is another tailwind to perk up the aviation space. This uptick is likely to continue as the Thanksgiving holiday period is round the corner.

Evidently, United Airlines aims to add more than 1,400 domestic flights to cater to the anticipated increase in demand for the Thanksgiving travel. Also, to meet the same, JetBlue Airways JBLU, currently carrying a Zacks Rank #3 (Hold), intends to add 25 flights. The new flights will operate between Nov 20 and Nov 30.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, hopes of a second federal stimulus package are still alive. Notably, following the expiry of the CARES Act on Sep 30, the U.S. airline industry witnessed job cuts due to the problem of overstaffing in the face of lackluster demand. In the event of another package finally managing to see the light of the day, airline stocks will be hugely benefited by helping prevent further workforce layoff at least in the near term.

To Conclude

The above write-up clearly suggests that despite the rise in the number of COVID-19 patients in the United States, there are some positives as far as the airline industry is concerned, which contributed to the recent upturn in the airline stock prices. Therefore we advise investors interested in the aviation domain to watch this space for more updates on whether the rally sustains.

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Southwest Airlines Co. (LUV): Free Stock Analysis Report
JetBlue Airways Corporation (JBLU): Free Stock Analysis Report
Pfizer Inc. (PFE): Free Stock Analysis Report
Moderna, Inc. (MRNA): Free Stock Analysis Report
Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
United Airlines Holdings Inc (UAL): Free Stock Analysis Report
American Airlines Group Inc. (AAL): Free Stock Analysis Report
Alaska Air Group, Inc. (ALK): Free Stock Analysis Report
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