Please ensure Javascript is enabled for purposes of website accessibility

Why Southwest Airlines and United Airlines Stocks Tanked Today

By Rich Smith - May 6, 2020 at 6:43PM

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

Reuters reports carriers are burning through $10 billion a month.

What happened

Shares of major American airlines got pummeled on Wednesday after Reuters detailed how the industry as a whole is burning through $10 billion a month as its most of its airplanes remain grounded due to a combination of stay-at-home orders and travelers' reluctance to sit in a confined space for hours surrounded by strangers.  

In Wednesday's trading, shares of American Airlines (AAL 1.73%) and Delta Air Lines (DAL 1.59%) got off relatively easy, down only 2.7% and 3.3%, respectively. But United Airlines (UAL 1.73%) lost 5%, and Southwest Airlines (LUV 1.26%) was down 5.6%.

Collage of an airplane, coronaviruses, and a world map

Image source: Getty Images.

So what

According to Reuters, nearly 50% of the more than 6,000 airplanes in the airlines' fleets are currently grounded due to government restrictions, customer apathy, or a combination of both. Those planes that are still flying are carrying an average of just 17 passengers per domestic flight, says the news agency, and only 29 passengers on international flights.

No matter how many seats are filled, however, each flight still requires a fully paid crew, and a tank of gas. Mechanics must still keep the planes properly maintained.

All of this costs money -- apparently in excess of $10 billion a month. Meanwhile, net bookings of paying passengers have fallen by nearly 100% year on year, Reuters says, and actual passenger traffic is down 95%.

Now what

And a lot of passengers are asking for refunds on their flights, 80% or more of which have been canceled through June. In prepared statements before the U.S. Senate today, airline executives were lining up to warn Congress that, if legislators require them to pay out refunds in cash instead of awarding credits toward future travel (as the airlines would prefer), it will lead to bankruptcy.

The prospect of that, it seems, was enough to scare investors out of airline stocks today.

Rich Smith has no position in any of the stocks mentioned. 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 Co. Stock Quote
Southwest Airlines Co.
LUV
$39.46 (1.26%) $0.49
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
UAL
$39.34 (1.73%) $0.67
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$34.50 (1.59%) $0.54
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL
$15.25 (1.73%) $0.26

*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
389%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

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.