Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Major U.S. Airlines Declined in February

By Lou Whiteman - Mar 3, 2020 at 8:10AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Coronavirus fears caused legacy carrier shares to plummet.

What happened

Shares of the legacy U.S. airlines all lost altitude in February, according to data provided by S&P Global Market Intelligence, caught in the broader COVID-19 coronavirus-related market downdraft. Shares of American Airlines Group (AAL -3.48%) traded down 29%, while shares of United Airlines Holdings (UAL -3.49%) and Delta Air Lines (DAL -2.27%) each lost more than 17% during the month.

So what

Although some of the market sell-off over coronavirus was likely fueled by uncertainty, the outbreak will definitely have a significant effect on first quarter results due to canceled flights and lost revenue. The "big three" airlines all canceled flights to China in late January after near-term demand for travel plummeted, and have selectively suspended other routes in response to coronavirus-related fears.

A busy airport.

Image source: Getty Images.

The stocks were hit hard in January due to the fears. What caused the sell-off to accelerate in late February was the spread of the coronavirus into new markets, including the first cases in the United States. Investors fretted that the coronavirus-related headlines would weigh on U.S. consumers as they plan summer vacation travel, potentially depressing demand during the peak summer season. Virus concerns also caused a number of companies to suspend non-essential business travel, eating into a key profit center for these large, legacy airlines.

American was hit particularly hard because it is seen as the most vulnerable of the major U.S. airlines to a prolonged travel slowdown. The airline has the highest debt burden among U.S. airlines, and going into 2020 had intended to use profits generated this year to pay down some of that debt.

AAL Chart

Airline data by YCharts

United, meanwhile, is the major U.S. airline with the most exposure to Asia. United gets about 10% of its revenue from Asia and has about 15% of its total capacity tied to the region, compared to 9% for Delta and 6% for American.

Delta might not be as big in the region as United, but the company does own a stake in one of the largest Chinese airlines and has targeted its relationship with Korean Air as a source of growth.

Now what

The markets hate uncertainty, and there is no way to say how aggressively the coronavirus will spread globally or how long it will take to get the outbreak under control. Until there is more clarity, it is going to be difficult for these stocks to take off.

That said, there is nothing to date to suggest that the coronavirus outbreak will leave a permanent mark on travel demand. And the airlines, though likely to report weaker earnings in the first half of 2020 if not beyond, are much healthier today than they were the last time there was a downturn and should be able to weather the storm.

Airline stocks are a lot cheaper today than they were a month ago. Expect continued volatility, and be selective about what you buy, but for those with the stomach to handle a rough ride in the weeks to come, the February drop-off has created some intriguing buying opportunities.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$29.64 (-2.27%) $0.69
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
UAL
$35.68 (-3.49%) $-1.29
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL
$13.03 (-3.48%) $0.47

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
319%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.