As states begin to open up 'leisure travel will start to come back': Analyst

Helane Becker, Cowen Senior Research Analyst, joined Yahoo Finance's The Final Round to discuss the rally airline stocks saw today and the new that American Airlines plans to fly 55% of its domestic schedule in July.

Video Transcript

SEANA SMITH: Welcome back to "The Final Round." Let's focus on a massive mover in today's market. And that's the airline stocks. Shares of American up over 40% today. We also saw significant gains from names like United, Delta, JetBlue all getting a pretty big boost.

Now, for more on this, I want to bring in Helane Becker, a Senior Research Analyst at Cowen. And Helane, it's great to have you on such an incredible day that we're seeing for a lot of these airline stocks. This comes on the heels of American saying that they plan to fly just around 55% of their domestic schedule.

So what should we expect just in terms of a recovery here for the airlines? Then, do you think airlines are going to be able to salvage at least some of their summer season?

HELANE BECKER: Yes to the second question, we do. We think that as a states open up and as there's things to do, leisure travelers will start to come back. I think people are tired of being under an in-paradise prison, as I call my house. I love it. But you know, 24/7 gets a little old.

And I think when you see Las Vegas open today-- and we know airlines were adding seats back-- I think a lot of the traffic-- the bookings are turning into people actually flying. And that's a good thing, because we saw the bottom when 87,000 people traveled on April 14. And it's grown steadily since.

And as I said, as states open, I think you'll see people want to travel more. We're watching Las Vegas, for sure. We're watching Orlando, where Disney said they'll open mid-July. And I think you'll be able to see part of July and into August improve.

Our forecast is for 400,000 passengers per day on August by August 1 and consistently. Right now, we've been running between 260,000 and 300,000 and kind of like 10,000, 20,000. I think we had a recent peak at about 350,000 around Memorial Day weekend.

But you know, look, we're still down from 2, 2.5 million a year ago. So it's not anything that we need to cheer about yet. But it's not really a trend in the right direction. And our forecast is for 750,000 per day by December 1 and 1 million by Christmas. Kind of like Christmas week, we see 1 million passengers.

You're still down 50% year over year, but you're up a lot off the bottom. And if there is a vaccine between now and then that's effective and that people start to receive, I think it recovers faster than that.

RICK NEWMAN: Hey, Helane. Rick Newman here. Remember when the CEO of Boeing a few weeks back accidentally on purpose said he thought one of the airlines might go out of business? Do you think that's true? It sounds like you don't.

HELANE BECKER: I don't. You know, you look at this stocks-- and that's certainly a big question, because they are airlines, and they're leveraged and have always been. And obviously, that's a worry.

But if you look at their cost of capital over the last three or four years, money has been really-- interest rates have been really low. Money has been cheap. And they've been able to refleet, lower their average fleet age on average. You've seen it coming down.

Over the next six months, we're going to see the airline industry in general do almost a decade's worth of aircraft retirements this year. And as you think about recovery and sustainability, the airlines are going to be in a really good place. And I certainly don't think that-- that we're in a spot where airlines are going to go bankrupt at all. They all have enough money to get to first quarter of '21. Their aspiration is to get to cash flow breakeven by year end or shortly thereafter.

And if they can do that-- and that's assuming zero revenue. And of course, we're assuming they generate revenue. And they are generating revenue. And so I think we can take bankruptcy off the table. If there's--

ANDY SERWER: [INAUDIBLE]

HELANE BECKER: Oh, I'm sorry. Go ahead.

ANDY SERWER: No, I'm sorry to jump in, Helane. It's Andy. I just wanted to ask you, what is it going to be like flying? I mean, how many people are they going to be able to put in the planes?

HELANE BECKER: Yeah.

ANDY SERWER: Are costs going to go way up and revenue down?

HELANE BECKER: Yeah. Yeah, that's a good question. So here's the thing. There's no such thing as social distancing on an airplane. I mean, you just can't do it. It's impossible.

If you were to try to do that-- think about it this way. Most airlines have 30 inches between seats. And you want six feet in every direction? You've got to buy, you know, 12 seats. That's not happening.

So I think the safest place for you to be is on an airplane. I think your risk is your rideshare, walking through the airport. Getting on the plane, they're fogging it. They're doing the cleaning that hospitals do from a sterilization perspective. People are bringing their own wet wipes.

If you wear a mask, you're going to be just fine. They're boarding back to front so you don't pass people. I personally think it's going to be OK.

Now, that said, to directly answer your question, the airlines have in general said they'll keep load factor, book load factor to 60% to 70% through the end of June, the end of July, and the end of September, depending on the airline. It kind of varies.

And you're right, this is not sustainable. They can't do it. Breakeven load factor before all this started was 80%. Now it's well over 100%. So the solution has to be that you just-- you know you're not going to get sick. You wear your mask. And you fly-- and of course, if you're uncomfortable, you just opt out and don't.

RICK NEWMAN: Helane? Hey, Helane, real quick question here. Are airfares going to go up?

HELANE BECKER: Directionally, up or down? So right now, they haven't moved. But as soon as demand starts to recover, I suspect airlines will start to lower fares. When you start to see consistent 60%, 70% load factors and people start to book and don't think about it, yep, I think fares are going to go down.

SEANA SMITH: That'll be good news for everyone then flying if fares actually good. I think the fear was that we will see a big increase here over the next couple of months. Helane, we have to leave it there. Helene Becker of Cowen, great to have you on. Thanks so much for taking the time today.

HELANE BECKER: Thanks very much for having me.