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Why Airline Shares Are Falling Today

By Lou Whiteman - Mar 11, 2020 at 11:44AM

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It's going to be hard to find a bottom until the coronavirus outbreak is under control.

What happened

Airline stocks were under pressure again on Wednesday following a series of Wall Street downgrades and fears that government assistance could be less certain than some have hoped.

Shares of JetBlue Airways (JBLU 0.47%) were down more than 8%, and a number of other companies including Delta Air Lines (DAL 1.02%), United Airlines Holdings (UAL 1.45%), American Airlines Group (AAL 5.71%), Southwest Airlines (LUV -0.60%), and Hawaiian Holdings (HA 3.48%) were all down more than 6%.

Stock photo of tourist with luggage wearing mask at airpot.

Image source: Getty Images.

So what

The airline stocks have been among the hardest hit by the COVID-19 coronavirus scare, with some companies down more than 40% year to date. The industry has reported a collapse in travel demand to areas most affected by the outbreak and falling demand for domestic and international flights.

Most of the major airlines have cut capacity in recent days, indicating they expect a sustained slump that will likely eat into demand during the peak spring break, Easter, and summer vacation seasons. Should the outbreak cause the U.S. economy to spiral into a recession, it would likely impact business travel for most of 2020 if not beyond.

AAL Chart

Airline data by YCharts

Airline stocks had a rare up day on Tuesday, buoyed by their cost-cutting announcements and the broader market's anticipation of action from Washington to try to mitigate the outbreak damage. The companies also should be able to offset at least some of the outbreak-related losses thanks to a plunge in crude oil prices, which annualized represents a $2 billion tailwind for the larger airlines.

But downgrades by Wall Street analysts at Evercore ISI and Argus, coupled with a round of news stories about how difficult it will be to quickly pass legislation in an election year, took the wind out of the sails on Wednesday.

Now what

Airlines are sure to be significantly impacted by the travel slowdown, and investors mindful of the numerous airline bankruptcies and failures that have accompanied past downturns appear to be saying "better safe than sorry" and fleeing the sector in case history repeats itself this time around.

Fortunately, the airlines are going into this crisis much healthier than they have been in years past, and I believe they all can weather the storm. But it is really hard to find a bottom during a developing situation, and the coronavirus outbreak appears far from contained.

Until it is, and airlines can offer more concrete estimates on the total impact of their businesses, it is going to be difficult for these airline stocks to gain altitude.

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Stocks Mentioned

Hawaiian Holdings, Inc. Stock Quote
Hawaiian Holdings, Inc.
$15.16 (3.48%) $0.51
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
$8.57 (0.47%) $0.04
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
$36.51 (-0.60%) $0.22
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$36.97 (1.45%) $0.53
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$29.82 (1.02%) $0.30
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$13.88 (5.71%) $0.75

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

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