What happened
Shares of Alaska Air Group (ALK -1.89%) fell 43.6% in March, according to data from S&P Global Market Intelligence, as the airline was caught up in a broader sell-off in the airline sector. The COVID-19 coronavirus pandemic is hitting the sector particularly hard and raising questions about the viability of the industry.
So what
Airlines have seen their businesses decimated by the pandemic, as global travel demand has all but evaporated overnight. Alaska is no exception. The company in March cut its April and May schedules by 70%, suspending its cash dividend and drawing down $400 million from a credit line and borrowing $425 million in fresh cash.
Image source: Alaska Air Group.
Alaska Air came into this in the early stages of a turnaround story as it completes the integration of Virgin America and revamps its network to focus on areas of competitive strength.
The company said June's schedule will be based on demand, with substantial cuts expected for the next several months. The airlines late in March did win $50 billion in loans and grants from the U.S. government as part of a broader $2 trillion economic stimulus package, but the money only buys time. The sector is going to need travel demand to return to avoid potential bankruptcies.
Now what
Alaska's troubles didn't end on the last day of March. Shares fell another 13% in the opening trading sessions of April as investors continue to worry that the downturn will be long and severe. In a recession, airlines historically have been able to use sales to bring tourists back, but more lucrative business travelers tend to stay away. And given what caused this particular slowdown, there is no assurance tourists will be looking to travel even if prices are low.
Alaska likely needs to see some sort of normalization in bookings, even if it is typical recession-level bookings, but midsummer to avoid more serious problems. I'm optimistic, but it is by no means certain. And until there's more certainty surrounding the pandemic and the economic ramifications, expect these shares to continue to be under pressure.
