It’s an interesting time watching (well, mostly reading) the news each day. I’ve been far more glued than is typical to the major outlets on the internet, far more than I would normally be even in an election year. The rapid spread of the coronavirus to nearly every corner of the globe is what I check in on most.
And in its wake it is wreaking destruction on the world’s airlines.
Airlines Stocks Are Down, Way Down
Along with keeping up with local news regarding the spread of the coronavirus, I’ve also been watching airline stocks every few days. All have fallen sharply. American has taken the worst hit of the Big 3, while Delta is so far down only 25%. Only. In terms of market cap, that’s roughly $10 billion in value.
Being hit even worse are low-cost carriers who are highly sensitive to prices and yields. With travel already down domestically, Spirit Airlines appears to be in free fall. Their stock is down 50% since February 13, falling from $44.58 to $21.74 as of today.
I don’t know what the repercussions are going to be, but they likely aren’t going to be good. Planes will need to be shelved, staff put on leave, and operations dialed back if things don’t pick up again quickly. FlyBe, a domestic UK airline, just collapsed. It would be devastating to the U.S. market if the same started happening here.
Best case scenario, things stabilize in the coming weeks as a) the virus stops spreading (unlikely) or b) it spreads so widely that containing it by forgoing travel becomes an exercise in futility. Personally, given that we’re at 100,000 cases worldwide and that so many people have contracted it via an unknown cause, I fully expect the latter to become reality.
Bottom Line
What’s funny is that I am not personally all that concerned about contracting the coronavirus. We have a single case reported in our rural county, and I’ve certainly been keeping tabs to understand if it is spreading here or not. I do my best not to worry about things that are far outside my control, and this soon-to-be-pandemic qualifies as one of them. My immediate family and I are far outside the high-risk categories for complications from the virus. But I know plenty of people who aren’t. And that is the hardest thing to think about.
Besides the risk to life and health, we’re may only seeing the beginning of the economic fallout from the coronavirus. China has basically halted its economy, which has to be hurting them immensely. With the globe as connected as it is, though, it will likely hurt everyone. So much of the world economy relies on both global supply chains and travel that we may feel the impact for anywhere from months to years.
I’ll be highly interested to if/how the airlines weather this crisis. Right now, things look bleak, and the market reflects the high level of uncertainty. But think…if airlines do weather this crisis well, this may be the ultimate time to buy.
I wouldn’t touch any stocks anytime soon. There is now a world recession and the stock market will crash sooner, rather than later (long over due and long on the tooth). This market runup since the Great Recession is a result of the Fed sponsored QE (even as we speak today. For example, lowering the interest rate is part of the QE process.). In other words, this recovery hasn’t been a genuine runup.
BTW – So far, the market downturn is only the tip of the ice burg.
I’m expecting that will likely be how things play out. We’ll see if the airlines weather this crisis or not.
At some point these stocks will be Buy candidates!
Quite likely. The other side of the coin is that they could go bankrupt.