Airlines Expanding July Schedule: Is It the End of the Worst?

On Jun 4, American Airlines Group Inc AAL said that it will almost triple its domestic schedule in July from what it flew in May. Also, United Airlines Holdings, Inc UAL announced plans of adding back domestic flights next month. This sent shares of airline companies rallying on Thursday.

Airlines have been one of the hardest-hit sectors due to the coronavirus outbreak as travel almost collapsed with its rapid spread. Although the federal government announced a total of $12.4 billion stimulus package to bail out the ailing airlines, the crisis is far from over. However, with the economy finally reopening, passenger traffic is increasing. This is a good sign for the airlines.

Airlines Adding Flights

On Jun 4, American Airlines said that it plans to fly 55% of its domestic schedule in July. This is a substantial jump from May when it flew only 20% of its schedule from a year earlier. Also, United Airlines said that it will add more flights, while taking a more cautious approach. This will include resuming around 130 nonstop routes in July that were suspended due to the coronavirus outbreak.

However, both United and American Airlines will be operating a lot fewer flights than they did last summer. That said, they could exceed the market's low expectations for business during the crucial peak vacation season. United will still operate only 30% of its 2019 U.S. schedule in July, which again is up from 13% in June. Most of the schedule from July will include routes that were suspended when travel almost came to a standstill owing to the pandemic.

The announcement from the two carries sent airlines stocks rallying on Thursday. Shares of United Airlines and American Airlines surged 16.2% and 41.3%, respectively. Also, shares of two other major U.S. airlines — Southwest Airlines Co LUV and Delta Air Line Inc DAL — jumped 5.1% and 13.7%, respectively.

Passenger Traffic Increasing

After being badly bruised by the coronavirus crisis, airlines somewhat breathed a sigh of relief after the government announced a total of $12.4 billion stimulus package. Airlines must not cut pay or jobs through Sep 30 as a condition of the grants and are barred from buying back stock or paying out dividends. They also face restrictions on executive compensation.

That said, the path to recovery won’t be easy. Now that the states have started lifting restrictions, passenger traffic too is increasing. All U.S. airlines are optimistic that more people will book flights this summer because passenger levels are increasing unabated.

In April, American Airlines averaged 32,154 passengers a day. From May 1 through May 23, its daily customer level more than doubled to 78,178, then jumped to 110,330 a day from May 24 to May 29. OAG, which tracks the airline industry and flight schedules, says all major U.S. carriers — United Airlines, American Airlines, Delta and Southwest — are increasing their June schedules by 27% from May. Each of these four airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

The increase is primarily due to additional domestic flights. However, according to the Transportation Security Administration, the number of passengers and airline crew members screened at U.S. airports is down more than 85% from a year earlier.

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