Shares of airlines are losing altitude again on Wednesday, under pressure following a somber news conference Tuesday night in which President Donald Trump warned of a long, drawn-out battle against the novel coronavirus. Time is of the essence for airlines now that the industry has won government support to tide it over until the fall.
Shares of Delta Air Lines (NYSE:DAL) and United Airlines Holdings (NYSE:UAL) each traded down more than 10% at 11:30 a.m., with shares of American Airlines Group (NASDAQ:AAL), Southwest Airlines (NYSE:LUV), and JetBlue Airways (NASDAQ:JBLU) all down more than 5%.
The airline industry's woes are by now well known: The pandemic has brought global travel to a halt, starving these high-fixed-cost businesses of revenue for a long time. The U.S. government last week stepped in to help, providing up to $50 billion in support as part of the $2 trillion economic stimulus package.
That buys the industry time, with United and American already telling employees the extra funding will allow them to avoid layoffs through September. But United did note that it can not sustain its current footprint indefinitely, with CEO Oscar Munoz saying in a letter to employees that "if the recovery is as slow as we fear, it means our airline and our workforce will have to be smaller than it is today."
With the assistance package in place, airline investors are now trying to figure out how long the pandemic will last and how long the economy will suffer.
President Trump in comments Tuesday night doused hopes of a quick recovery, saying, "This is going to be a painful two weeks." Deborah Birx, one of the scientists on the White House coronavirus task force, during the same news conference said that more than 100,000 Americans could die from the virus even with the most stringent mitigation measures in place.
Those estimates put the markets under pressure on Wednesday and had airline investors concerned there is little hope for a quick turnaround.
It's a delicate time to be an airline investor. Thanks to the bailout package we can say with some certainty that there is not going to be a near-term U.S. bankruptcy, but there is significant uncertainty about what the future holds for the industry.
I remain bullish about long-term travel trends, and optimistic that travel will at least return to more normal recessionary levels by the fall. Smaller airlines like JetBlue and more indebted ones like American could face bigger problems, but all the major U.S. operators have the wherewithal to survive a recession.
Expect more volatility in the weeks to come as dire pandemic headlines continue, but for those able to stomach the turbulence I do believe there is an opportunity here to buy into some of the industry's top operators at a discount.