What happened
Airlines are already dealing with labor shortages, higher-than-expected expenses, and uncertainty about the economy. In the days to come, they will be forced to deal with the aftereffects of a major hurricane as well.
Investors are fleeing for the exits. On a bad day on Wall Street, airlines are underperforming the broader markets, with shares of American Airlines Group (AAL 0.44%), Delta Air Lines (DAL 0.01%), and JetBlue Airways (JBLU 3.85%) all down as much as 5%. Shares of other carriers including United Airlines Holdings (UAL 1.30%), Alaska Air Group (ALK 1.00%), and Southwest Airlines (LUV 1.62%) are down sharply as well.
So what
Hurricane Ian's landfall seems certain to have a devastating impact on south Florida, putting lives at risk and causing more than $65 billion in projected economic damage. Tourism is a very small piece of the overall story surrounding the hurricane, and inconsequential compared to the loss of life, but the storm's aftereffect could weigh on airline demand in the months to come.
Florida is an important market for American, Delta, and JetBlue, among other airlines, and the part of Florida that is taking the hardest hit is a popular spot for vacationers.
The storm comes at a time when investors already had serious concerns about demand. On Thursday, the broader market sell-off continued due to concerns that the Federal Reserve's inflation fight would throw the U.S. economy into a recession. Airlines tend not to do well in a recession, as plane tickets are a large, often discretionary purchase that can easily be put off when households are focused on belt tightening.
JetBlue is seen as a particular risk because the airline is in the early stages of trying to win approval to acquire Spirit Airlines (SAVE +0.00%). The deal was first considered earlier this year, when inflation risk wasn't yet front and center, and it was billed as an opportunity to accelerate growth. Now, JetBlue could be faced with a complex integration at a time of fledgling demand.
NASDAQ: JBLU
Key Data Points
Now what
It is often said that markets hate uncertainty. There is a lot of uncertainty surrounding the airline industry right now.
We don't yet know if the economy will fall into a recession, but with the Federal Reserve committed to taming inflation, it appears we are likely in for several more months of rate hikes that could take into 2023 to fully ripple through the economy. And troubles in Europe are limiting international travel demand.
Absent some clarity about where things will go from here, there isn't a compelling reason to rush in to buy airline stocks on the decline. There is likely value at these levels, with Delta and Southwest particularly well positioned to rebound ahead of the pack. But even in the best-case scenario, it's hard to imagine the airline stocks getting out of their funk before 2023, and a lot more could go wrong between now and then.
For the time being, investors are voting with their feet and moving to the sidelines.
