Low-Cost Airline Stocks Take Off From Support

Leisure travel supports low-cost carriers

Ongoing international border restrictions and reduced corporate travel throughout the remainder of 2020 look likely as new coronavirus cases continue to emerge. Low-cost carriers appear better suited to operate in this turbulent environment, given their reduced exposure to foreign destinations and focus on domestic leisure markets.

Travel insurance comparison site Squaremouth said that policies purchased reveal that domestic trips account for 57% of planned travel throughout the rest of 2020, up from just 12.3% over the same period last year. Meanwhile, U.S. Travel Association CEO Roger Dow believes that vacation travelers will lead the recovery. "Our research actually says that leisure travel is going to be among the first to come back," he said, per The Washington Post.

In recent months, budget airlines have added additional discounted flights to popular destinations to lure customers back into the skies after months of remaining cooped up at home under imposed lockdown measures. Below, we take a look at three such carriers and turn to the charts to point out possible trading opportunities.

Spirit Airlines, Inc. (SAVE)

Florida-based Spirit Airlines, Inc. (SAVE) provides low-fare airline services to around 75 destinations in the United States, the Caribbean, and Latin America. Due to better-than-expected demand throughout the pandemic, the no-frills carrier increased its daily scheduled flights from 50 in April to more than 300 by the end of last month. Moreover, the airline plans to add additional flights throughout July to meet increased summer travel demand as coronavirus restrictions ease. However, CEO Ted Christie said that, if passenger numbers fall amid a spike in new virus infections, the budget airline will promptly cut flights. As of July 13, 2020, Spirit Airlines has a market capitalization of $1.55 billion and is trading nearly 25% higher over the past three months. 

Since early June, the share price has traded within a descending triangle that finds a confluence of support from a horizontal trendline and the 50-day simple moving average (SMA). The stock rallied more than 10% from this level Friday in a move that may induce further buying in the weeks ahead. Those who buy here should consider placing a stop-loss order beneath the July low at $15.54 and booking profits on a test of the 200-day SMA.

Chart depicting the share price of Spirit Airlines, Inc. (SAVE)

JetBlue Airways Corporation (JBLU)

Low-cost carrier JetBlue Airways Corporation (JBLU) flies to roughly 100 destinations in the United States, Latin America, and the Caribbean. The $2.86 billion New York-based airline announced in June that it had added 30 new domestic routes to serve customers seeking leisure travel to visit friends and relatives after the pandemic lockdown. It has also resumed flights to nine temporarily closed cities and summer destinations, such as Martha's Vineyard and Puerto Rico. JetBlue stock has crashed 44% year to date but has rebounded 11.58% since mid-April as of July 13, 2020.

JetBlue shares encounter significant support from a prominent horizontal line around $10. The bulls successfully defended this level in Friday's session to close the stock comfortably above the 50-day SMA. Conservative traders may wait for the moving average convergence divergence (MACD) indicator to cross about its trigger line and generate a buy signal before entering. Those who do take a position should target a move to the June 8 high at $15.62 but cut losses if price fails to hold above this month's low at $9.86.

Chart depicting the share price of JetBlue Airways Corporation (JBLU)

Southwest Airlines Co. (LUV)

Famous for its blue, yellow, and red livery, Southwest Airlines Co. (LUV) operates a low-cost passenger airline that provides flights in the United States and nearby international markets. The company, which operates over 700 aircraft in an all-Boeing fleet, announced last month that it plans to introduce additional flights and routes to cater to increasing leisure travel during the fall and winter holidays. The Dallas-based airline also anticipates operating more nonstop flights to popular destinations including Phoenix, Denver, Las Vegas, and Nashville from early November. Southwest Airlines stock has outperformed the airlines industry average by 9% year to date but is still trading down 38% on the year as of July 13, 2020.

The share price caught a bid Friday in a zone of support between $30 and $32.50, indicating active accumulation in this area. Furthermore, the relative strength index (RSI) sits well below overbought levels, which gives the stock ample room to test higher prices before consolidating. Those who take a trade should set a take-profit order around $42.50 – a place of possible resistance from the March and June swing highs. Protect capital with a stop situated somewhere beneath $30.

Chart depicting the share price of Southwest Airlines Co. (LUV)
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