American Airlines jets sit at the gate in Miami on December 24. (Photo by Daniel Slim)

This story has been updated with year end 2020 share prices.

As 2020 ended, airline passenger numbers surpassed lows, a new round of federal relief was in place and vaccine expectations had raised hopes.

But airline shares slumped badly in this coronavirus year, despite a rally that began in early November and brought near-40% sector gains.

The S&P ended 2020 up 16%, while Southwest the best performing airline was down 14%.

For the full year, JetBlue was down 22%. Alaska was down 23%. Delta was down 31%. Spirit was down 39%. American Airlines was down 45%. United was down 51%.

American shares had the most dramatic story line. The stock opened the year at $29.09, rose to $30.47, sank to the $9 range in May, and closed at $15.77.

In May, bankruptcy chatter engulfed American, after Boeings gaffe-prone CEO speculated that a major airline could go out of business this year. The tea leaf readers, scrutinizing an arcane financial instrument called credit default swaps, concluded that he referred to American.

Online headlines proclaimed American Airlines: The First to Go Under, Is American Airlines Really Bound for Bankruptcy? and American Airlines: The Possible Path to Bankruptcy.

Today, American projects it will have more than $14 billion in liquidity at year-end, the bankruptcy chatter came to be recognized as nonsense, and one key analyst thinks that shares are trading too high.

American remains by far the name we receive the most inquiry on, often coming in the form of How can you possibly explain this (high) valuation? JP Morgan analyst Jamie Baker wrote in a Dec. 16 report.

We can identify no fundamental argument for the recent strength in AAL equity, he said. Better equity upside potential exists elsewhere.

Our theory: Investors know they bought into a false bankruptcy narrative and are now overcompensating.

Comparing American with its peers has been difficult, given the years unusual conditions. All airlines face impossible conditions. Revenue has declined sharply, and constantly changing environments make it impossible to forecast where to put airplanes.

American has higher debt because it invested in newer airplanes. Given the current overabundance of airplanes, this may not have been the best course. Or perhaps, if demand returns suddenly, it will appear prescient.

Looking ahead to 2021, consensus suggests the sector is not poised to gain ground in the near term.

Airlines are still far away from recovering and are looking to bridge the gap between now and when herd immunity can be achieved, Cowen & Co. analyst Helane Becker wrote in a Dec. 18 report.

Deutsche Banks Michael Linenberg cut his ratings on all the stocks from buy to hold in December, while Baker issued a series of downgrades on Dec. 16, saying share prices were high enough following the rally.

The recent ascent in airline equities has significantly diminished the implied potential upside to several of our Dec 21 price targets, with some having already passed through said targets, Baker said.

Our earlier overweight ratings for JBLU, SAVE & UAL are now reduced to underweight, joining AAL & LUV, Baker wrote. He left Air Canada, Alaska and Delta at overweight.

According to Barrons, The pandemic cant end soon enough for airlines, but investors have priced the carriers shares as if the end is in sight.

In a story entitled, 5 Airline Stocks That Could Cruise Higher, Barrons says the outlook is best for five carriers: Delta, Southwest, Allegiant, Ryanair and Gol.

Consensus estimates are pricing in a recovery to more than 80% of 2019 revenue in 2022, the magazine said. But there is a big unknown: how much business travel goes permanently online.

Will business travel fully recover? Most airline industry veterans expect it will, because it always has. But tech influencers say it wont, because all they have ever known is technology creep replacing everything.

It says here that Delta CEO Ed Bastian should have the last word.

On Deltas October earnings call, Bastian answered an analysts question about pontification regarding the business travel outlook.

Having been in this business for a long time, every crisis that I've been part of, and it's been a lot of crises over that twenty-plus years, this was the first thing that people always talked about, Bastian said, specifying: the death of business travel and (how) technology was going to replace the need for travel.

Every single time, business travel has come back stronger than anyone anticipated, he said.

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Airline Shares Ended 2020 Down, But The Sky Did Not Fall And American Bankruptcy Chatter Turned Out To Be Nonsense - Forbes