U.S. airline shares headed for a record weekly gain as investors bet that travel demand was poised to rebound.
American Airlines Group Inc. and United Airlines Holdings Inc. climbed for a fifth straight day on signs that passengers were returning after the covid-19 pandemic devastated demand. Friday's surge -- amid a broad rally on encouraging economic news -- was big enough to spur President Donald Trump to tease billionaire Warren Buffett for dumping airline shares.
"He's been right his whole life, but sometimes even somebody like Warren Buffett -- I have a lot of respect for him -- they make mistakes," Trump said in a White House news conference. He also touted a surprise gain in payroll jobs last month. "They should have kept airline stocks, because the airline stocks went through the roof today and others did too."
American ignited the gains Thursday after expanding its July schedule and signaling that passengers were returning, while United also added flights. Airlines are still bracing for years of pain. But more robust summer schedules suggest that the worst has passed -- and that the rebound in demand has a chance of outpacing the dire expectations the industry was outlining as recently as last month.
[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]
A Standard & Poor's index of the five biggest U.S. airlines jumped 5.7% in New York, putting it on pace for a 36% weekly gain. That would be the biggest in data going back to 1989. American led Friday's advance, climbing 11% to $18.59 while United rallied by 8.5%. At the same time, Southwest Airlines Co. fell 0.24%.
The S&P 500 advanced 2.6% on the unemployment report.
Buffett abandoned his investments in all four major U.S. airlines as the coronavirus pandemic curbed travel across the globe, saying in May that the "world changed" for the airline industry.
American's red-hot advance "reflects the elimination of bankruptcy fears" as investors mull the potential for a faster recovery, Raymond James analyst Savanthi Syth wrote in a note. A short squeeze could also be pushing the stock higher, she said.
About 35% of American shares available for trading are currently sold short, with the $2.4 billion in bets against the company among the largest for its rivals, data from financial analytics firm S3 Partners show. Bearish bets on United are a tamer 12%.
American is "priced close to perfection," which may mean raising equity is in the works, Syth said in the research note. She cut the shares to underperform from market perform. News for American is likely to remain positive in the near term as leisure travel makes a summer recovery and before investors shift their focus to fourth-quarter risks like a second wave of the pandemic, Syth said.
The enthusiasm for airline stocks is spurring huge inflows in the exchange-traded fund market. The U.S. Global Jets exchange-traded fund soared past $1 billion in assets this week after holding just $33 million in early March.
Other travel- and leisure-related stocks extended the week's gains. Pandemic-crushed segments including hotels, casinos, cruise operators, boating and amusement parks were among groups climbing as travel halts ease and global markets continue gradually reopening.
Business on 06/06/2020