What the airline recovery will look like post COVID-19

Helane Becker, Cowen Analyst joins Yahoo Finance’s Live panel to discuss the outlook for summer travel season as COVID-19 vaccinations ramp up.

Video Transcript

ZACK GUZMAN: Welcome back to Yahoo Finance Live. Of course, as we've been tracking through the pandemic, air travel has taken a very serious hit ever since things really happened back in March of 2020. TSA throughput, as of the last week in February, was down more than 50% in terms of airline travelers going through TSA checkpoints. It's even worse when you look at international travel as well. The global airline body, IATA, said that things got particularly bad in January, as international travel plunged 86% in the month, compared to what we saw pre-pandemic.

So, all of that not necessarily pointing back to a very strong recovery, but what lies in the months ahead? Here to break that down for us is Cowen analyst Helane Becker once again. Helane, good to be chatting with you here today. When you look at it, this is something that you talked to us about in the past. Really, that international stress and strain on airlines that really make their money there, partially why you like some more domestic airlines like Southwest. So talk to me about what this recovery looks like over the months ahead.

HELANE BECKER: Yeah, thanks for having me again. So here's my thought. I think we're going to see a jailbreak this summer as more people get vaccinated. But it's going to be domestic travel. It's not going to be international. If it is, it'll be Caribbean, Mexico. The Canadian border is still closed. A big problem in January was the concern among, I guess, scientists and governments that there were super spreader events in December would create additional coronavirus cases and deaths.

And then you had people urging others to stay home when the reality is air travel is still safe. And, you know, think about all the people who are flying, especially crew. You don't hear crews getting coronavirus. So you know air travel is safe. It's just there's nothing to do when you get to where you're going. So our view is that beginning the end of the month, so I think that's right around Easter-- I feel like Easter is the beginning of April this year.

So I think you'll see traffic really pick up, let's say, March 20th. And I think it'll be around a million passengers a day. And going through April, remember April of 2020 was the absolute bottom when we saw 87,000 people travel. In a normal day, you'd see 2 and 1/2 million people travel. So we're thinking a million, a million one. And then Memorial Day weekend, we think that's when the recovery will really start in earnest, and it will go through the summer.

As I said, I think it's going to be domestic and near international. I don't think people are comfortable yet traveling eight hours on a plane to get to Italy or France or Spain. But that said, I think the governments over there need to also think about reopening in a safe-- of course, I want everything to open safely. I'm sorry, go ahead.

AKIKO FUJITA: Helane, how much of the international piece do you think is contingent on vaccine testing at the airports? We've heard IATA, they already launched a pilot on their passports or digital passports that essentially allow people to store all of the information around testing, as well as the vaccines. It's kind of like a digital ID card. I mean, is that what it's going to take for people to feel comfortable to fly again internationally?

HELANE BECKER: Yes, in a word. So people will get used to anything. We got used to taking our shoes off and going through metal detectors, and we got used to taking our coats off and taking our toiletries out of our bag. We'll get used to this vaccine passport idea for a couple of years. And I think that's what it will take. Once people get vaccinated, if you can have it on your smartphone, terrific. Or you print it out and you take it with you. I think that'll be great because that will encourage things to reopen.

And, B, as far as testing goes, I don't have a problem so much with international testing. A lot of the big resorts in the Caribbean are offering that testing at the resort. What will happen is it will cause a decline in, like, long weekends, but week long trips should still be fine.

And then the other thing, you know, we're testing in this country a million and a half people a day. And a million people a day are traveling. So you can't ask people domestically to travel, but you can ask people to come back into the US if they've not been vaccinated to test. But I think it's either, or. I don't think it's both. And I think as more and more people get vaccinated, things will be-- you know, things will open. It will be a lot easier.

ZACK GUZMAN: Well, let's talk about the best ways to play this, too. Because I feel like each time you come on, Southwest stock-- one of your picks-- continues to rise. So I don't know if things have moved too far ahead of where you think they should be at this stage in the recovery. But I also saw fares still down in terms of your tracker, down about 12% year over year. So maybe some still-- still some good travel deals out there. People want to actually take up these airlines on their offers. But what are you seeing in terms of where we should be trading, your targets for some of these airlines? What's best?

HELANE BECKER: Some of these stocks are back to pre-pandemic levels. Southwest is one of them. And when you think about having taken money from the government and the dilution, if we had thought pre-pandemic the stock could have traded to 65 or 70, as we did, probably now the stock trades to 60 because we have to allow some dilution. And the stock is almost there. It's been trading in the mid 50s to high 50s, really, for the past maybe four or five weeks actually.

There are some stocks like United where we thought the stock could trade to $100 a share, stocks around 50. We have a buy on that. And, again, because of dilution, maybe it doesn't get fully back to 100. Maybe it gets back to 90. But there is still room. And what you get with a stock like United or even American or Delta, like the big three, what you would get with the three of them is international exposure. So if we're wrong and international recover sooner than we think, you get that leverage.

Southwest is a safe way to play it. They've got a fortress balance sheet. But it's become a crowded stock among institutional investors. It's an easy one to own. So maybe it's not our first choice. Maybe United, Alaska, JetBlue, Delta, American, kind of in that order, ahead of Southwest. But, you know, definitely stay with the large domestic airlines with good balance sheets in a position to weather the storm.

We're not expecting bankruptcy, as we've talked about that before. We think that the recovery-- as the recovery accelerates and people feel more comfortable booking further than a week or two in advance, as people start thinking about booking their summer vacation in maybe April, that helps cash flow. And that's going to be huge to get to the other side of this--

AKIKO FUJITA: So, Helane, what is expected?

HELANE BECKER: --I feel like we're closer to that.

AKIKO FUJITA: What about consolidation?

HELANE BECKER: Yeah, so I don't know how this particular administration is going to feel about industry consolidation. My sense is we're not going to see too much of that. And we should. We should Probably have fewer airlines, but we won't because the consumerists will be concerned that air fares will go too high, right? Everybody complains, oh, let the airlines go bankrupt.

But then when we have fewer airlines or airfares are going to go up, and then those same people will complain, oh, well, airfares are so high. So I don't think we're going to see industry consolidation that rapidly, especially among the larger airlines. The government was already complaining pre-pandemic. I don't see it happening post-pandemic.

AKIKO FUJITA: Always good to get your insight. Cowen analyst Helane Becker joining us there.