The alarming outbreak of the Ebola virus has been taking a toll on global markets over the past few weeks. Now, the second Ebola case in the U.S. – that of a Dallas nurse who was transferred by air to Atlanta – has once again resulted in a downward spiraling in the stock market, especially impacting airline stocks.
Going by reports, fears about the deadly virus coupled with concerns regarding a global economic slowdown and a resultant high volatility in the dollar has induced a sharp decline in indices across major markets. The Vix volatility index, which measures the volatility of the S&P 500 index, rose 22% to 31.06 in Wednesday trading, representing the highest level since 2012, before it closed at 25.27, up 15% on the day.
Given such uncertainties, market indices such as FTSE, Dow Jones Industrial Average and MSCI Asia-Pacific observed a sharp fall. This is naturally expected to impact airline stocks as well. According to reports, Dow Jones Transportation Average, which includes carriers like Southwest Airlines Co. (LUV) and JetBlue Airways, Inc. (JBLU), has lost 8.7% since Sept 18.
Some of the biggest losers in the last five trading sessions were Copa Holdings SA (CPA), Delta Air Lines, Inc. (DAL), American Airlines Group Inc. (AAL), JetBlue Airways and Spirit Airlines, Inc. (SAVE).
Notably, United Continental Holdings, Inc. (UAL) – which has the highest exposure to Africa because of its Star Alliance – witnessed a drop of 1.44% on Wednesday trading. On the contrary, peers like JetBlue Airways, American Airlines and Southwest Airlines managed to bounce back, recovering 0.64%, 0.57% and 0.07%, respectively.
Although airline stocks continue to be plagued by Ebola worries, per market news, travel-booking data suggest no major downfall in bookings so far. This lends optimism to the current bleak scenario.
Further, low fuel prices also pose a key factor as to why analysts expect to see strong financial results at most airline companies through the fourth quarter of this fiscal. Nonetheless, a cloud of uncertainty continues to linger over the upcoming third quarter. This could result in a negatively skewed market sentiment before the earnings season.
A rise in economic indicators, increasing fares and consolidation within the sector has allowed the airline industry to smoothly sail through year 2014 up til now. Most of the larger airline companies have seen significant appreciation in their share prices. However, as long as the Ebola virus continues to wreck havoc and generate fear, we believe airline stocks could continue forward in the red.
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