Coronavirus could cost the airline industry up to $113 billion, according to the International Air Transport Association.
U.S. airline stocks have been slammed as companies cancel all but urgent travel and avoid regions with high numbers of cases of the coronavirus COVID-19, but investors say the reaction may be overdone.
Airline stocks were walloped on Thursday, after Southwest lowered its first-quarter guidance due to a “significant decline in customer demand, as well as an increase in trip cancellations”, as well as the bankruptcy of an ailing U.K. airline. The S&P 500 airline subindex — comprising Alaska Air Group Inc. ALK, +4.02%, American Airlines Group Inc. AAL, -0.43%, Delta Air Lines Inc. DAL, +1.95%, Southwest Airlines Co. LUV, +1.06%, and United — rose 13% in the 12 months through Jan. 17.
“The trouble is, our investment recommendations pertain to our view of stock performance over the next year. And the next year is looking like anything but normal due to the virus outbreak.”“The uncertainty of the COVID-19 impact on air travel demand, and the history of large losses when demand abruptly declines, pose too great a risk over the next year ... Even if the long-term earning power of some of these airlines is little changed,” Scarola said.
Revenue for March and April are likely to take “a major short-term hit,” Becker said. “Since corporate travel is down substantially and is not expected to recover for at least one to two months, we expect airlines to consider discounting to attract domestic leisure passengers.” Some domestic airlines are also facing risks associated with the ongoing delayed return-to-service of Boeing Co.’s BA, +0.75% 737 Max aircraft, which has precipitated several schedule revisions especially at American Airlines and Southwest, large Boeing customers.
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