The summer travel season traditionally takes off over the Memorial Day holiday and U.S. airlines are counting this year on increased passenger loads to help them emerge from the COVID-19 pandemic. 

Some 1.8 million passengers passed through security at the nation's airports on March 23, the largest number in more than a year with the average daily number consistently trending higher since mid-March. But "it is not a foregone conclusion that the market will rebound enough to save all of these businesses," RapidRatings CEO James Gellert told Yahoo Finance Live.  

His firm runs financial stress tests on major global companies to determine if they can withstand financial shocks created by a crisis like COVID-19. RapidRatings uses a 100 point scale and any score below 40 indicates trouble. Over the last 20 years 90% of companies that have failed have been rated 40 and below on the RapidRatings scale.

"Those ratings started to come down precipitously last year, and you've got the majority of them rated in the 20s and 30s, with the highest being Southwest at a 40," Gellert said.  

The airlines have taken on billions of dollars in new debt and shored up their balance sheets over the last year, Gellert said. "They do have enough liquidity to go for the better part of the next 12 to 24 months without a real risk of bankruptcy." After that, he said all bets are off.  

'Levels similar to 2019'

"They have between 75 and 90% of their assets already secured so it's very hard to borrow more money after all of your assets are effectively pledged. So that's going to give them very little flexibility as we go forward if indeed they need additional capital," he cautioned. 

This Memorial Day marks the start of the summer travel season. Image: Getty

The airlines are still losing money but point to shrinking average daily cash burn as a sign they are on the right path. United Airlines (UAL) in a recent SEC 8K filing said, "yields on tickets issued since the beginning of May 2021 for travel in the second quarter 2021 have reached levels similar to 2019, with domestic leisure yields exceeding 2019 levels for the same time period." United "expects to achieve positive adjusted EBITDA in the month of June 2021," as the domestic travel market improves.

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Southwest Airlines (LUV) in its recent SEC filing reported continuing improvements in leisure passenger bookings for May and June. "Based on current bookings, leisure fare levels in June 2021 are nearing June 2019 levels," Southwest said.  

Southwest also plans to expand its capacity 41% year-over-year, by July, driven mostly by pandemic weary Americans going on vacation. "Based on current booking trends and cost outlook, the company continues to expect to achieve breakeven average core cash flow, or better, in June 2021," it said in its filing.

Investors are paying attention. Cowen Equity Research analyst Helane Becker issued a new Short Interest Index Update to her clients Wednesday. It measures short interest, as a percent of float, of publicly traded U.S. airlines. The index currently sits at 4.02%, 21bps lower than the last read and 456bps off its mid-May high.

"Short interest in the first half of May rose for shares of Mesa (+52 bps), SkyWest (+40 bps), and JetBlue (+28 bps). Short interest fell for shares of Spirit (-343 bps), American (-99 bps), Hawaiian (-47 bps), and United (-45 bps). The remaining airlines saw short interest decline less than 25 bps over the two-week period: Alaska (+17 bps), Southwest (+14 bps), Allegiant (+7 bps), Delta (-23 bps)," Becker wrote.

Gellert said short-term risks for the airlines increased dramatically during the pandemic and remains elevated. "So if the market doesn't rebound enough that these companies can be self sufficient, and in a year to two years time they need to start raising capital again, the markets have to be there for them or they're really going to be in a pinch."

Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm. Follow him on Twitter @Ajshaps

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