What happened

The "reopening trade" is on again on Monday, with investors encouraged by the progress of the stimulus bill and hopes that the pandemic will soon be behind us.

Airlines and other sectors that were beaten down as the virus spread last year are in rally mode, with shares of Mesa Air Group (NASDAQ: MESA) up 15%, and shares of United Airlines Holdings (NASDAQ: UAL), American Airlines Group (NASDAQ: AAL), Southwest Airlines (NYSE: LUV), Spirit Airlines (NYSE: SAVE), and JetBlue Airways (NASDAQ: JBLU) all up more than 5% apiece.

So what

Airline stocks were among the hardest hit in the early days of the pandemic, with lockdowns and quarantines all but wiping out demand for travel. The industry survived the crisis, and the stocks have been on the rise since late fall as the COVID-19 vaccine rollout began.

The stocks got a fresh life on Monday on progress out of Washington toward finalizing a $1.9 trillion relief package. The legislation contains additional aid for the airlines, in the form of payroll guarantees, and if it works to plan, the bill should also keep the economy humming and make sure that as more people are vaccinated they are willing to spend on travel.

Image source: Getty Images.

American gave an "all clear" signal on Monday, announcing plans to tap private debt markets to repay government loans taken on during the pandemic. And for the first time since the early days of the pandemic, the seven-day moving average number of people screened at airports jumped above the 1 million per day mark.

Mesa continues to be the big winner so far in 2021. The company operates fee-for-service planes on behalf of larger airline partners including American and United. The stock was up more than 120% for the year as of last week, but lost some of that altitude after an analyst downgrade on valuation and news of some insider sales. But the outlook still remains favorable for Mesa, and the stock on Monday made back much of what it lost last week.

Now what

The rationale behind the rally is sound. After more than a year locked in our homes, there is likely a lot of pent-up demand for travel. With the White House predicting there will be enough vaccine available to jab all Americans by the end of May, there are high hopes for the summer vacation season.

There's still reason for caution here. As mentioned late last month, if you factor in debt, a lot of these airlines are worth more now than they were prior to the pandemic. That seems frothy, especially considering that business and international travel will likely take months if not years to return. The airlines have bruised balance sheets and uncertain labor relations, and they face questions about long-term demand trends from businesses forced to adjust during the lockdown.

For those looking to invest, Spirit and Southwest appear most likely to fully recover ahead of the pack due to their lower costs and focus on leisure travel. But neither stock is the bargain it used to be. It's a good time to be patient and selective concerning airline stocks.

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Lou Whiteman owns shares of Spirit Airlines. The Motley Fool owns shares of Spirit Airlines. The Motley Fool recommends JetBlue Airways and Southwest Airlines. The Motley Fool has a disclosure policy.