Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Airline Stocks Are Falling Again Today

By Lou Whiteman - Mar 19, 2020 at 10:57AM

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

Everyone is waiting for word out of Washington.

What happened

Another day, another double-digit drop at the opening for airline stocks. The industry and its investors are fixated on a government assistance package, and while White House officials continue to insist it is a top priority, every day nothing gets done adds to the uncertainty.

Shares of Spirit Airlines (SAVE 2.98%) opened down more than 20%, while a basket of airlines including American Airlines Group (AAL 3.55%), Delta Air Lines (DAL 1.90%), United Airlines Holdings (UAL 2.88%), Southwest Airlines (LUV 1.69%), Alaska Air Group (ALK 2.80%), Hawaiian Holdings (HA 2.38%), and JetBlue Airways (JBLU 1.91%) all opened down more than 10%.

Most have recovered at least some after that initial fall but expect the volatility to remain as we await more news about a potential bailout.

So what

The airline industry's woes are well documented, with the COVID-19 coronavirus pandemic all but wiping out global travel demand and causing bookings to drop to record lows. The industry has scrambled to cut costs by freezing hiring and cutting schedules, but there is no amount of cost cutting that can offset revenue falling off a cliff.

Delta Air Lines, for example, said it expects March revenue to decline by about $2 billion year over year, with April expected to be worse. Delta is grounding upwards of 600 planes and taking other steps to control costs, but in a memo to employees, CEO Ed Bastian said he doesn't know if that will be enough.

"In this unpredictable environment we can't take any options off the table," he said.

A tourist wearing a safety mask walks through an airport terminal.

Image source: Getty Images.

White House officials have said airlines are a top priority, with the industry floating a $50 billion package of grants, deferred taxes, and loan guarantees to get them through the crisis. But there is substantial pushback to that plan, and the outlook for aid, and what form that aid might take, is uncertain.

Meanwhile, the global situation for airlines continues to grow more dire. The International Air Transport Association on Thursday said upwards of $200 billion in aid will be required worldwide to rescue the industry.

Now what

There is a confidence game of sorts going on with the industry right now. Most of the airlines have a cash runway of a couple of months and plenty of unencumbered assets to use as collateral for new financing. But they need lenders, creditors, and other counterparties to remain confident the airlines will not eventually go bankrupt in order to access additional capital.

A government aid package provides at least some level of assurance that the airlines will remain flying, which in turn should open up more private-sector avenues for raising cash and might, ironically, make government assistance less necessary. Some of the larger, better-run airlines like Delta can likely fly through this storm regardless, but could end up in real danger if a weaker airline were to fail and cause panic to ripple through the industry.

Until the pandemic is contained and travel begins to normalize, it might be tough for these airline stocks to escape volatility. But in a world full of uncertainty, in the near-term expect the airlines to jump based on the prospects of a relief package coming out of Washington.

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

Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
$41.17 (2.80%) $1.12
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
$8.53 (1.91%) $0.16
Hawaiian Holdings, Inc. Stock Quote
Hawaiian Holdings, Inc.
$14.65 (2.38%) $0.34
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
$36.73 (1.69%) $0.61
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$36.44 (2.88%) $1.02
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$29.52 (1.90%) $0.55
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
$24.55 (2.98%) $0.71
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$13.13 (3.55%) $0.45

*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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

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.