Displaying items by tag: Delta
Why Airlines and Hotels Look Doomed
Airlines had a pretty good run headed into last week’s downturns. Other travel stocks did too. However, the markets really seem to have gotten ahead of themselves, because the big rallies appear to forget some fundamental changes that might be taking place under the COVID lockdown. While a knee-jerk rise in share prices alongside the lifting of lockdown orders might be logical on the surface, it ignores the fact that a great deal of domestic US travel is for business, and attitudes towards business travel have changed remarkably since March. Many companies have found remote work even more productive than office work, and no longer see the need for travel. Also, it is easier to cut travel budgets by 50% than it is to lay off more people.
FINSUM: We think there is going to be serious changes to the business travel paradigm that prevailed pre-COVID. It has now been demonstrated that similar levels of sales can be achieved by videoconference, and when you count the cost and time of travel, it is clear that companies are going to permanently cut budgets.
The Loser’s Rebound
Some stocks seem to be rallying for no apparent reason. The only underlying logic being that they got badly beaten up during the COVID meltdown and now look cheap relative to the market’s rebound. Call it the loser’s rally. Delta, for instance, has seen some significant gains in its price despite the fact that the airline business continues to look very bleak. Delta could be considered best-of-breed though, having a much healthier balance sheet than American Airlines.
FINSUM: This is a dangerous game—when stocks that look weak rise for no apparent reason. They will fall sharply when sentiment swings back.
Don’t Hope for an Airline Recovery
If you have any hope for a quick airline recovery post-coronavirus, take that idea, crumple it into a little ball and throw it away. The reality of air travel’s recovery is looking bleaker by the week. On the one hand, additional safety measures are going to be necessity for a long time—and they will be costly. Extra screening, spacing out passengers etc all have significant costs. Additionally, many airlines will have to forego middle seating to create adequate distance between passengers, cutting down on capacity. All of this will come as demand for air travel remains low in the short-term and secularly weaker in the long-term. For instance, business travel for meetings, conferences etc all looks likely to be very slow to recover because companies don’t want to put their workers in harm’s way. Videoconferencing has also proven very effective.
FINSUM: There is likely to be a big clearing out of weaker airlines and several years of losses/less profit for larger ones.
Coronavirus will Cost Airlines $100 bn
We can finally put a number on it. Anecdotal evidence has shown that airlines and other travel companies are getting hammered. Now analysts have an estimate of just how much of a hit airlines are going to take. The answer is more than $100 bn of lost business because of coronavirus. The specific figure is $113 bn, a 4x increase in forecasted lost revenue from just two weeks ago. Big airlines like Delta, United, and Southwest have been cutting routes and flights left and right.
FINSUM: These stocks have gotten pummeled because of Coronavirus. When is the right time to buy in?
Airline Stocks Plummet as Coronavirus Hits Europe
We have ben warning for weeks that as the coronavirus continued to spread, airline and other travel stocks would continue to be wounded (and likely not recover soon). That is happening n a big way today as news of a quarantine in Italy sent markets into a panic about the spread of the disease beyond China. Cruise ships and airline stocks are taking body blows as a result, with Delta and American down 7% and 10% respectively.
FINSUM: These are massive losses, and the worst part about it is that there is unlikely to be a “V” shaped recovery in these sectors, as it will take some time for the public’s fear of the virus (and thus travel) to wane even after things start to get better.