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."
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