Do not buy American Airlines shares until demand “lifts off”

<p>With more travel restrictions likely on the way, American Airlines (NASDAQ: AAL) shares are likely to fall further over the next week or two.

Source: GagliardiPhotography / Shutterstock.com

As a result, it is not the best time to buy stocks. But in early April, the spread of coronavirus from China is likely to slow in large parts of the United States and Europe, easing restrictions.

In mid-May, when the weather really warms up, the fear of air travel will also diminish. At the same time, it seems that the government will prevent large airlines, including American ones, from going bankrupt.

At some point in April, the stock‘s weakness may, depending on events, give risk-tolerant investors a good buying opportunity.

Increasing travel restrictions

On Sunday, March 14, President Donald Trump announced that travelers without US citizenship would not be allowed to enter the country if they had recently been to Britain and Ireland.

The decision came after he announced a similar ban on entry into the United States for non-citizens who have been to 26 other European countries. Important for AAL shares, Trump added that he is “considering restrictions on travel within the United States,” CNN reported.

The research company Stifel says that it believes that the United States will eventually limit travel from Central and South America, and the company believes that domestic travel can also be introduced.

As long as such restrictions still exist, the demand for flights will be extremely low. Furthermore, the restrictions will keep investors very low in relation to the airline’s shares. It is therefore not good to buy the airlines’ shares with more restrictions in the future.

What happens to Coronavirus?

In China and South Korea, the coronavirus was severely slowed down after about six weeks. The virus began circulating meaningfully in China in early January, and its spread began to decline in mid-February. It arrived in South Korea in late January and began to decline sharply around mid-March.

So in Western Europe and the United States, where the virus became serious in late February, the spread will probably be much easier in early April.

As I have noted before, the virus seems to spread much more slowly in warmer weather, so the warmer weather that comes in a few weeks should also help to slow down the outbreak.

Oh, and warmer weather will also play another role. Sunny skies should lead to a recovery in demand for air travel, at least in the United States

The government will probably get the airlines back

Treasury Secretary Steven Mnuchin has stated that the administration will try to prevent the airlines from going out of business. And Trump and Mnuchin are both corporate Republicans.

Consequently, investors probably do not have to worry about the administration taking a page from President Barack Obama‘s playbook.

But there is a small chance that congressional Democrats and Republicans will not be able to agree on a deal to keep airlines from collapsing.

The conclusion on AAL stock

With new travel restrictions likely to come soon, it’s not good to buy American Airlines shares.

Given the above points, equities are likely to fall further before the end of March. However, the stock may become attractive in early April, ahead of the likely lifting of travel restrictions and the slowdown in the coronavirus.

Before buying AAL shares, however, non-speculative investors should wait for either congressional approval of financial aid to the aviation industry or assurances from analysts that American Airlines is no longer at risk of going bankrupt.

At the time of writing, Larry Ramer did not own any of the above securities. Larry Ramer has been researching and writing articles about US stocks for 13 years. He has been employed by The Fly and Israel’s largest business magazine, Globes. Larry started writing columns for InvestorPlace 2015. Among his very successful, conflicting choices have been GE, Sun Warehouse and Snap. You can reach him on StockTwits at @larryramer.