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Coronavirus: how airline stocks have reacted and what might happen next

By Connor Freitas

Airline stocks have experienced sharp declines since the coronavirus outbreak began – and history shows things might get worse before they get better

With pressure growing over climate change – and geopolitical tensions sending oil prices soaring at the start of January – airline stocks were already struggling to cope with several headaches. The ever-worsening situation surrounding the coronavirus has only added insult to serious injury.

Here’s a recap of what’s been happening this fast-moving crisis. The World Health Organization has declared a global emergency and has called on countries around the world to co-ordinate their response. Meanwhile, the number of confirmed cases in China has exceeded 10,000 – and at least 210 people have died. The outbreak has now spread to more than a dozen countries, some of which have seen the coronavirus transmitted from person to person for the first time.

In order to try and clamp down on the spread of the virus, several nations have imposed travel restrictions on citizens who may have been planning to fly. One of them is the United States, which has urged Americans not to travel to China – its highest-level warning. Those who are currently in the country are being urged to “consider departing using commercial means”.

This development in particular helps us to understand the turbulence that the airline industry is facing. Research from IBISWorld suggests that the airline industry generated revenue of $86bn in China in 2019. Total passenger volume also stood at 670.8m last year, a 9.7 per cent rise from the year before. The coronavirus has the potential to undo all of this growth and exacerbate China’s economic slowdown. GDP in the economic powerhouse grew at its slowest pace for almost 30 years in the third quarter of 2019 – and it is without doubt that this outbreak will exacerbate the country’s dwindling performance. Travel and tourism aren’t the only areas affected – the Lunar New Year has been all but cancelled in China, an event that was expected to give the economy a much-needed boost.

Where airlines stand on the coronavirus

So how have some of the world’s biggest airlines reacted to the coronavirus crisis? Here’s a rundown of how major companies have altered their flight schedules – and, of course, this information may be subject to change:

  • Air France-KLM: all flights to mainland China suspended until February 9
  • Air India: serrvice from Mumbai to Shanghai via Delhi cancelled until February 14
  • Air New Zealand: flights from Auckland to Shanghai reduced from once a day to four times a week between February 18 and March 31
  • Air Seoul: South Korea’s budget carrier has suspended all flights indefinitely
  • British Airways: all flights to mainland China cancelled for a month
  • Delta Air Lines: the American carrier is halving its flights to 21 a week between February 6 and 30 April 30
  • Lufthansa: all flights suspended until February 9, and the company is not taking bookings for China services until the end of February. Flights to Hong Kong will continue
  • Virgin Atlantic: daily services to Shanghai will be suspended for a fortnight from February 2.

In another dramatic development, American Airlines pilots are suing their own company in order to demand that it halts flights to China immediately. Although the operator has said it will suspend services from Los Angeles to Beijing and Shanghai from February 9 until March 27, more than 50 flights are still scheduled to take place every month.

All of this is incredibly significant. Millions of people around the world are now unable to travel to and from China – or are finding it increasingly difficult – depriving the airline industry of revenue.

Let’s take a look at how the share prices of major airlines have reacted in recent days – and assess where they might go next.

How airline stocks have been affected

Delta’s prices were at a January high of $62 but at the time of writing they stood at $57.10 – a decline of 7.9 per cent. The fall at United, another American airline, has been even more precipitous, plummeting from $89.70 on January 17 to lows of $75.21 on January 29 (that’s a fall of 16.2 per cent). International Airlines Group, the umbrella company for brands including Aer Lingus and British Airways, had tumbled from 671p onvJanuary 17 to 572p at the time of writing – a 14 per cent drop.

It’s difficult to predict where share prices might go next, or whether they are anywhere near reaching the bottom, because of how the coronavirus is still an unknown quantity. Given how the number of confirmed cases and deaths in China are accelerating rapidly rather than slowing down, it may be the case that there’s no end in sight.

Hedge funds have begun to aggressively short the stock of major airlines – especially Air France-KLM, which is especially reliant on Asia for its revenues. Although direct flights to China represent just 3.6 per cent of overall turnover, the shockwaves that the coronavirus will send through the region mean the true effect on its bottom line could be far more severe than this.

In the face of so much uncertainty, it’s worth looking at how airline stocks fared during the outbreak of severe acute respiratory syndrome (more commonly known as SARS). During the 2003 outbreak, which also originated in China and was initially covered up by Chinese authorities, more than 8,100 people were infected and 774 people lost their lives. Already, there have been more confirmed cases for the coronavirus.

US airlines stocks lost more 30 per cent of their value as a result of the SARS outbreak, which was described by Lufthansa’s then CEO as the “worst-ever crisis” to strike the aviation industry. It took more than 12 months for airline share prices to return to their previous levels – with the recovery largely taking place three months after medical concerns had largely subsided, with demand returning over the same period of time.

SARS may not end up being an accurate comparison, but at least it provides a benchmark for investors on what to expect. When it comes to the aviation industry, the message is clear: proceed with caution.

FURTHER READING: What is the coronavirus and how could it affect stock markets?

FURTHER READING: Coronavirus: BA suspends China flights as evacuation race begins

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