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Stock Market News: Why Airline Stocks Are Losing Altitude Again

By Dan Caplinger – May 13, 2020 at 11:55AM

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The stock market moved lower early Wednesday, and there's pain in the skies once more.

The stock market moved lower on Wednesday morning, reacting negatively to comments from Federal Reserve Chair Jay Powell. Powell painted an ugly picture of what the future might bring, noting all the challenges that the economy will face in trying to recover from the severe disruptions that the coronavirus pandemic has caused. As of 11:15 a.m. EDT, the Dow Jones Industrial Average (^DJI 2.80%) was down 227 points to 23,537. The S&P 500 (^GSPC 3.06%) fell 15 points to 2,855, and the Nasdaq Composite (^IXIC) eased lower by 15 points to 8,988.

Leading stocks lower were airlines, with significant losses for major carriers and smaller companies alike. With so much doubt about whether travel will ever be the same, investors are fearful about the long-term prospects for airlines and their ability to make changes that reflect a new normal in a post-coronavirus world.

Airplane with gear down, with colorful sky above.

Image source: Getty Images.

Downbeat words from Boeing

The latest reality check for airlines came from aircraft manufacturer Boeing (BA 5.92%). On Tuesday, the company's CEO David Calhoun predicted that a major carrier would likely be forced to file for bankruptcy protection within the next several months. Calhoun didn't offer which airline he thought would be a casualty of the fallout from the coronavirus pandemic, but investors took the statement as a blanket condemnation of the industry's prospects.

On Wednesday morning, United Airlines Holdings (UAL 7.68%) took the hardest hit among the top four airlines, falling almost 9%. Delta Air Lines (DAL 8.81%) and American Airlines Group (AAL 8.64%) suffered 6% declines, while Southwest Airlines (LUV 6.31%) fell 5%.

Yet the damage wasn't limited to the major carriers. Spirit Airlines (SAVE 3.54%) saw the biggest drop of nearly 14%, but JetBlue Airways (JBLU 8.28%), Alaska Air Group (ALK 6.87%), and Hawaiian Holdings (HA 7.71%) were all down 5% to 7%.

Is there a future for airline stocks?

The problem lies in how little room airlines have to adapt to a new normal. Calhoun said that even four months from now, traffic could be just a quarter of what it was before the pandemic. He suggested that it could be 2025 before air travel fully recovers.

In the interim, airlines have to deal with multiple challenges. Coronavirus-related policies like mask-wearing requirements are running into resistance from passengers, while efforts to leave distance on flights will require the companies to accept revenue-losing empty seats. Having taken assistance from the federal government, airlines now have stakeholders with different priorities than their traditional shareholders. Moreover, there's little assurance that the liquidity that they've gotten will be adequate to weather an extended period of weaker business conditions.

Nevertheless, airline executives are trying to remain optimistic. Southwest and JetBlue both believe that the worst of the damage came in April, and the question now will be whether the industry can mount a comeback that will get passengers back in the skies safely and in greater numbers.

With so much doubt about the coronavirus itself, coming up with those safety measures will be tough in the near term. Today's declines in airline stocks  show that investors don't have the confidence they once had that the carriers will be able to get through the current turbulence unscathed.

Dan Caplinger owns shares of Boeing. The Motley Fool owns shares of and recommends Spirit Airlines. The Motley Fool recommends Alaska Air Group, Delta Air Lines, Hawaiian Holdings, JetBlue Airways, and Southwest Airlines. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
$133.51 (5.92%) $7.46
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
$33.19 (6.31%) $1.97
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$30,316.32 (2.80%) $825.43
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,790.93 (3.06%) $112.50
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$10,815.43 (%)
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
$7.19 (8.28%) $0.55
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$35.33 (7.68%) $2.52
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$30.75 (8.81%) $2.49
Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
$42.65 (6.87%) $2.74
Spirit Airlines, Inc. Stock Quote
Spirit Airlines, Inc.
$20.17 (3.54%) $0.69
Hawaiian Holdings, Inc. Stock Quote
Hawaiian Holdings, Inc.
$14.25 (7.71%) $1.02
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$12.95 (8.64%) $1.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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