What happened
International-focused airlines were under pressure on Monday due to new restrictions imposed by countries trying to fight the Delta variant of the coronavirus. Shares of American Airlines Group (AAL 3.83%) led the decline, down as much as 5% in midday trading.
So what
After a miserable 2020, airlines have rebounded nicely so far this year as vaccines have gained traction and travelers have returned to the skies. But for the most part, it has been a domestic recovery, and more-lucrative international travel remains muted.
Image source: American Airlines.
Fresh developments in fighting the pandemic suggest we will not see a return of robust international travel anytime soon. Parts of Australia have begun a two-week lockdown as cases of the so-called Delta variant of the virus have increased, and in Europe a number of countries are taking steps to limit international travel in response to the threat.
In good times, full-service airlines including American, United Airlines Holdings (UAL 4.58%), and Delta Air Lines (DAL 3.07%) generate a significant portion of their profits from international travel. And even as progress is made in the U.S., the industry is going to suffer some until there is again unfettered travel around the globe.
Now what
The new virus threats are compounding an already murky future for the airlines, with American and others also facing pilot shortages and other staffing issues. These big companies tried to be conservative last year when cutting personnel in response to the outbreak, but are now struggling to adequately staff a recovery.
Shares of American have doubled from spring 2020 lows, and it does seem clear that the worst is now over for an industry hard hit by the pandemic. But the news flow Monday is a reminder that it isn't all clear skies ahead, and that there is likely a limit to how high these shares can fly in the near term. The stocks are selling off as a result.
