Shares of JetBlue Airways (NASDAQ:JBLU) climbed nearly 10% on renewed investor confidence that airline stocks can weather a COVID-19 coronavirus-induced travel slump. Many of JetBlue's larger rivals are following that company's lead and bringing down capacity, lessening the risk of a price war.
The airlines have been hard hit during the coronavirus sell-off as investors react to travel demand all but evaporating in areas where the outbreak is most prevalent. Selling has increased in recent days with concerns that the weakness will last through the key spring break and summer vacation travel seasons. JetBlue shares have lost nearly 30% of their value year to date.
The airline industry is beginning to react in an attempt to staunch those concerns. JetBlue last week announced capacity cuts in response to the slowdown, and large airlines on Tuesday announced their plans to cut capacity.
JetBlue and other airline stocks are also getting a lift from the plunge in crude prices, which should bring down fuel expenses. The drop in oil prices represents an annualized savings of up to $2 billion for some of the larger carriers and should help the entire sector to at least somewhat offset falling demand.
Airlines have tended to do poorly during downturns, and shares have traded in recent weeks as though a bankruptcy was inevitable. I don't believe that's the case, and Tuesday's trading suggests some are warming to the industry.
However, investors should be cautious. This is still a developing story, and no one really knows how severe the impact will be on airlines or the economy in general. Bad headlines tomorrow could reverse Tuesday's gains and add to the woes. But for those who can handle the turbulence, coronavirus is no reason to deplane.