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Is the Summer of Covid Staycations Canceled?

(Bloomberg Opinion) -- American Airlines Group Inc. shares surged more than 35% on Thursday after the company signaled a rebound in air travel. If, like many Americans, you’re currently planning a 10-hour-plus summer road trip with the family you’ve been holed up with for months to avoid spending a fraction of the time with dozens of strangers on a plane, that may seem a bit odd.

Maybe you’re the weird ones, you might think, as you search for the Transportation Security Administration checkpoint data you’ve seen referenced in many news articles. But you're still in the majority: Sure, traffic is up from the most restrictive lockdown days of April and March, but the number of U.S. fliers on Wednesday was just 13% of what it was the same time last year. Going further down the Internet rabbit hole, you might see that American’s head of personnel said in a memo literally a week ago that the carrier would need to dramatically shrink “for the foreseeable future” and cut 30% of its management and support staff. Welcome to the world of stock trading in the coronavirus era.

These days, the actual numbers matter less to investors than momentum. Any sign of a recovery from the coronavirus destruction, however modest or nascent, is richly rewarded. That’s especially true for companies such as American, which had seen an elevated level of bearish bets made against it by short-sellers. These holders can be squeezed by unexpected good news, and they can magnify a rally as they scramble to buy back the stock to cover their wagers.

To be fair, American did report good news on Thursday. The company said it was adding flights for July after seeing increased demand from leisure travelers for trips to states that have reopened, such as Florida, Georgia and South Carolina, as well as interest in visits to national parks in Utah, Wyoming, Montana and Colorado. That will boost July capacity to 40% of last year’s levels, compared with a June schedule that’s 30% of a year earlier and May operations that were a mere 20% of normal traffic. This kind of steady improvement is encouraging because it suggests that a recovery in air travel may not be the multi-year battle that many in the industry have indicated.

That’s the glass-half-full take. The half-empty take is that July capacity will still be down 60% from a year earlier. However you slice it, that is still terrible and in any other environment would be a downright catastrophe. That first wave of returning passengers is also likely the easiest group to win back. A recovery in international and longer-haul business travel, where airlines make most of their money, will be much harder, with American restoring service to eight overseas destinations but delaying the return of other flights. American’s load factor, or the average percentage of filled seats, was 55% in the last week of May, up from 15% in April but still down significantly from 86.6% in the second quarter of last year. American hasn’t followed rival Delta Air Lines Inc. in guaranteeing an empty middle seat, though the carrier said it would offer an unspecified percentage of passengers the option to rebook on empty planes if their flight is relatively full and deemed “eligible.” A lack of social distancing on flights has elicited grumbles on social media from those who have been brave enough to fly during the pandemic, and poor experiences won’t encourage those people to get back on a plane again soon.

Perhaps most important, yet another sizable uptick in fresh jobless claims this week raises the question of how many people will be financially capable of paying for flights this year, even if they’re comfortable with the concept of plane travel. Despite its positive tone on Thursday, American itself has yet to walk back any of its own comments about the need for severe cuts to its staff. “Aviation is still in a fragile state,” Vertical Research Partners analyst Rob Stallard wrote in a note on Thursday. “There is a clear risk that aero share prices have got ahead of the fundamentals here.”

So go ahead, travel — and buy travel-related stocks — but do it at your own risk.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

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