What happened

Shares of airline stocks continued their descent on Monday, battered by a fresh round of capacity cuts and talk of financial collapse. Shares of United Airlines Holdings (UAL 0.76%) opened down more than 18% and Delta Air Lines (DAL 0.93%) was down 15%, with shares of American Airlines Group (AAL 2.32%), Southwest Airlines (LUV 0.75%), JetBlue Airways (JBLU 2.90%), and Hawaiian Holdings (HA 0.50%) all down 10% or more.

So what

The COVID-19 coronavirus outbreak has caused global travel demand to evaporate and has left airlines scrambling to cut costs as quickly as possible. Over the weekend American and United each announced dramatic capacity reductions, following a similar announcement by Delta on Friday.

A traveler walks through an airport with a respiratory mask.

Image source: Getty Images.

The outbreak is expected to cost global airlines more than $100 billion in revenue, and with U.S. school districts shutting down and local governments urging citizens to practice social distancing for weeks to months to come, travel is unlikely to normalize quickly. United said the virus-related revenue impact for March alone could be as high as $1.5 billion.

With so much uncertainty, many industry watchers are fearing the worst. Australian consulting firm CAPA - Centre for Aviation put out a report Monday warning that absent government intervention, "most" of the world's airlines could be in bankruptcy by the end of May.

"Coordinated government and industry action is needed -- now -- if catastrophe is to be avoided," CAPA wrote.

Now what

The longer this goes, the more dangerous it is for the airlines. Fortunately, all of the large companies have shown in recent days they still have access to liquidity, and the airlines have billions in unencumbered assets they can borrow against. The U.S. government has said it is preparing to act to try to prop up the industry.

I still believe the U.S. airlines can weather the storm without bankruptcies, but with each passing day the threat is growing, especially for smaller carriers like JetBlue and Hawaiian. And even if the companies can survive without bankruptcy, it is going to be hard for the stocks to find a bottom until some signs emerge that the outbreak is under control and travel can return to normal.