Growth in March 2021
The year 2020 was not the best for the airline industry as a whole. The implications brought down by the COVID-19 pandemic were not only massive but cash-burning as well. In addition, because of the nature of such implications, no airline had an easy way around them. 

To simply put it, nobody in the business had the luxury of just closing down their activities for the time being, nor the luxury of cutting down significant expenses.

However, as vaccines have been rolling out at accelerated rates and cases have been quickly declining, air travel demand has been rising these past couple of months. 

Two major airlines found themselves being the primary receivers of this newfound benefit last March alone: American Airlines Group (NASDAQ: AAL) and United Airlines Holdings (NASDAQ: UAL).

The prophesied return of air travelers finally comes

While the demand for air travel in the U.S. still hasn’t reached its pre-pandemic numbers yet, its recent rise has undoubtedly been significant over the past two months. Especially for the Airlines themselves.

Using 2019 numbers for comparison, passenger screenings for early February were lower by 62%. On the other hand, screenings for late March were down only by 39%.

Furthermore, American Airlines recently reported that its bookings had reached 90% of its 2019 levels.

As people get increasingly more comfortable with the idea of traveling by plane again (at least domestically), we are certainly looking at an opportunity for airlines to finally overcome many, if not all, of their pandemic-related challenges.

It is also worth noting that both spring and summer are just around the corner. So we are not only nearing a surge in air travel but a massive one as well. Relatively speaking, of course.

A financial improvement for airlines

Naturally, with the return of customers also comes the return of cash flow.

As airlines typically charge for their services when booking and not at the actual flight, the current increase in customers easily translates to an equally high instant revenue.

To give you an idea, American Airlines saw themselves burning an average of $27 million dollars in their first financial quarter of 2021. Astonishingly, in March alone, the cash burn reduced itself to only $4 million. Furthermore, their actual revenue was once again on the positive side of the scale.

Likewise, United Airlines saw themselves burning only an average of $9 million per day. For pandemic-based numbers, that’s more than excellent.

What’s next for investors?

The fact that these two major airlines are finally getting back on track is an excellent one. That’s a straight-up fact.

However, we think investors should still be keeping themselves on the defensive regarding this matter. 

Why?

For starters, with this new reality we are all living in now, airlines have entirely restructured their financial model in ways we haven’t heard of before. They have mainly changed their perspectives regarding which expenses truly count as recovery investments and which ones count as losses for the company. 

Based on that, the numbers we see today could eventually reveal themselves as sugarcoating for the companies’ actual performance.

Additionally, these recovery investments come with their respective debts, and all obligations have to be paid eventually. 

What worries us the most regarding this point is that, based on what can nowadays be appreciated from each company, they have still to come up with any clear indicator that would lead us to believe that there are prospects for paying the said debt. 

Even if they were to prove themselves capable of managing that debt, there’s still the possibility that it would still severely reduce the amounts of capital typically meant for investors.

Again, both companies are facing a significant increase in demand and cash flow. That’s still a fact and a positive one at best. In normal circumstances, that would always mean that said company is worth looking into as a viable option. 

However, there’s still a lot of uncertainty and risk in this particular case that we do not feel comfortable with. 

For those reasons, our best recommendation would be to pass up on this opportunity and look for safer ones instead.