Please ensure Javascript is enabled for purposes of website accessibility

Stock Market News: Why Airline Stocks Are Losing Altitude Again

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

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

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.

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

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

*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
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

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.