Please ensure Javascript is enabled for purposes of website accessibility

Why Airline Shares Are Falling Today

By Lou Whiteman – Apr 3, 2020 at 8:23PM

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

Fresh details reinforce how difficult the current environment is for airlines.

What happened

Shares of major airlines continued to be under pressure on Friday as fresh details leaked out about how the COVID-19 coronavirus pandemic has impacted travel demand. The airlines are bleeding cash and looking for ways to cut costs, and increasingly it appears there will be no quick turnaround.

Shares of American Airlines Group (AAL -1.09%) were down 8% as of 3 p.m. EDT, while shares of United Airlines Holdings (UAL -1.30%) and Southwest Airlines (LUV -1.36%) were down more than 5%.

So what

Airlines have been hard hit by the pandemic, with travel demand all but evaporating overnight. The airlines have cut flights and grounded planes to try to trim costs, but no amount of cutting can offset no revenue coming in the door.

Airline executives in the last 24 hours have given an indication about how dire the situation is, with United president Scott Kirby saying during an employee town hall meeting that revenue is down $100 million per day. Southwest meanwhile operated 56 flights last Monday with zero passengers onboard, according to a memo obtained by the Dallas Business Journal.

A plane landing at night.

Image source: Getty Images.

The U.S. government came through with $50 billion to support the industry last week, but that cash will only last for so long. United management warned employees last Friday 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."

Unfortunately, the airlines see little evidence that the downturn will be quick. In a regulatory filing Friday, American said it was suspending more than 60% of total international capacity for the summer, due to a drop in demand, and has pushed back the start date for planned new international service from October 2020 to the winter of 2021.

Now what

There's no easy answer for the airlines, and their share-price declines reflect that. Shares of United, American, and Delta Air Lines are all down more than 60% year to date, and shares of Southwest have lost nearly half of their value.

Thanks in part to the government bailout, the companies have a cash runway and are not a bankruptcy risk. But until there's some sign that the pandemic is under control, and at least a hint that U.S. travel is recovering to at least normal recessionary levels, it's going to be hard for these stocks to get a lift.

I still believe the airlines can navigate through this, but investors interested in exploring the sector would be wise to focus on the top operators that should be able to withstand the slowdown longer.

Lou Whiteman owns shares of Delta Air Lines. The Motley Fool owns shares of and recommends Delta Air Lines and Southwest Airlines. The Motley Fool has a disclosure policy.

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

Southwest Airlines Stock Quote
Southwest Airlines
LUV
$32.54 (-1.36%) $0.45
United Airlines Holdings Stock Quote
United Airlines Holdings
UAL
$34.96 (-1.30%) $0.46
American Airlines Group Stock Quote
American Airlines Group
AAL
$12.73 (-1.09%) $0.14

*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
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

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.