Airlines Are Falling Ill

Written by Jennifer Clark
Posted March 11, 2020

The impact of coronavirus is hitting U.S. airlines hard.

Americans are now wary of international travel and even travel throughout the U.S. People aren’t willing to chance getting infected by sharing a small space with strangers. The threat (and the panic) are very real, and it’s only going to get worse as more U.S. states announce coronavirus cases.

American Airlines Group (NASDAQ: AAL), Delta Air Lines (NYSE: DAL), and Southwest Airlines (NYSE: LUV) announced on Tuesday that they will be cutting more flights in both domestic and international markets, parking planes, and freezing hiring to fight against this downturn. 

Southwest went further, with its CEO Gary Kelly telling employees that he would take a 10% pay cut as the airline encounters one of the most severe downturns in decades. Airlines started to see the effects of the virus at the beginning of the year, but I’m sure these companies weren’t expecting things to get as bad as they have. 

American Airlines plans on cutting domestic flights by 7.5% and reducing international flights by 10%. March is usually a popular month for people looking to travel for spring break or before the summer peak travel season ramps up.

This virus could easily make this year’s summer travel season one of the worst. Southwest’s Mr. Kelly even told Southwest’s employees that the virus has created a serious challenge within the industry — something it hasn’t experienced since 9/11.

The fact that the coronavirus and its effects on the economy are being compared to a tragic historical event like 9/11 speaks volumes. After 9/11, it took awhile for people to feel OK about flying again. 

Delta said that it will most likely end up parking some of its planes and reducing overall capacity throughout its network — cutting international capacity by about 25% and domestic capacity by as much as 15%. The airline even said that it could retire some of its planes early if the outlook continues to be uncertain. 

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Delta CEO Ed Bastian said:

We have made the difficult but necessary decision to immediately reduce capacity and are implementing cost reductions and cash-flow initiatives across the organization.

Travel and tourism are important to the economy and what’s happening with airlines is an indicator that things will get a lot worse before they get better — as long as this virus is around. Former Nasdaq CEO Bob Greifeld said:

When you look at the real world, $8.8 trillion of the world’s global economy is tied to tourism — about 10%. There’s no way that number holds up. So it’s impossible to believe that we do not go into a real recession. That will happen.

Greifeld continued:

We never had this situation where you had tourism being such a large part of the global economy. That did not exist in years past. Tourism has increased greater than GDP growth for the past 10 years. 

The virus is inducing fear in people and businesses and that has obviously been reflected in the stock market for the past few days. The threat will pass if we take COVID-19 seriously and help prevent its spread.

Of course, its end won’t be instantaneous. It’ll take some time for it to fully pass and for people to start feeling like everything is back to normal. It seems as if people are panicking because they think that this virus will be around forever. We’re seeing the result of that panic.

Until next time,

Jennifer Clark
Pro Trader Today
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