Coronavirus raises worries about a broad slowdown in air travel

Foreign travelers wearing masks walk past a departures information board at Beijing International Airport in Beijing, China as the country is hit by an outbreak of the new coronavirus, February 1, 2020.

Jason Lee | Reuters

The rapid spread of the new coronavirus is testing airlines and other travel companies with a risk that had been nearly unthinkable over the past decade: a broad decline in travel demand.

Air-travel demand had been growing at twice the pace of the global economy, but that bright spot is now at risk. U.S. airlines and other travel stocks have tumbled more than the broader market in this week’s rout as big conferences were canceled and fears grew that customers may just opt out of trips because of the spreading COVID-19 outbreak.

The issue caps a difficult year for airlines that have been grappling with the nearly yearlong grounding of the Boeing 737 Max. Carriers need demand to stay robust, particularly in the lucrative spring and summer travel seasons, and analysts are warning that that looks unlikely.

The NYSE Arca Airline Index, which tracks 16 carriers in North America, Latin America and budget carrier Ryanair, has dropped more than 15% this week as of Wednesday’s close, putting it on pace for its biggest weekly percentage loss since March 2009 — during the last recession. American Airlines shares on Wednesday closed the lowest since before its 2013 merger with US Airways and United Airlines, which suspended its full-year guidance this week because of the virus, fell to a more than two-year low.

“Every day we think we could be near a bottom, and every day we are not,” Cowen airline analyst Helane Becker said in a note Thursday.

Deutsche Bank on Thursday downgraded American, Alaska, Delta, Spirit, JetBlue and United stocks to hold from buy, saying it “is becoming increasingly more likely that the spread of COVID-19 will disrupt travel patterns beyond China.”

More than 81,000 people have been sickened with coronavirus and new cases are rising outside of China, where most of the cases have been reported. The Centers for Disease Control and Prevention on Wednesday advised the public to avoid all nonessential travel to South Korea. Saudi Arabia it will temporarily suspend the entry of foreigners for pilgrimage and tourism purposes.

Airlines have already canceled more than 200,000 flights, mostly to, from and within China because of the virus. Now they are mulling other changes. Delta slashed its service to South Korea, home to the largest outbreak outside of China, to 15 weekly flights from 28. All three major U.S. airlines have suspended flights to mainland China and Hong Kong and waived cancellation and change fees for China and South Korea as demand collapsed.

U.S. airlines, which historically have experienced boom-and-bust cycles, have just posted their 10th consecutive year of profitability, but their future performance will hinge on whether demand declines sharply in the U.S.

Social media’s effect

Some carriers are already preparing for flyers too worried to travel. The last global outbreak of this scale was SARS just under a decade ago, but the fast spread of information could lead travelers to change their plans more quickly now, analysts said.

“We didn’t have Facebook and Twitter,” said Darryl Genovesi, airline analyst at Vertical Research Partners.

The CDC on Wednesday reported the first possible case of “community transmission” of the coronavirus. The Northern California resident had no travel history or contacts that would have put the person at risk, the CDC said. While the number of confirmed cases in the U.S. is still relatively low, some airlines are preparing for passengers to be too scared to travel.

JetBlue Airways in a surprise move Wednesday, said it would waive fees for travelers who want to cancel or change the date of tickets they buy from Thursday through March 11, a measure that pressures other U.S. airlines to follow suit.

“The risk here for airlines is this triggers a broad slowdown in travel,” said Samuel Engel, head of the aviation practice at consulting firm ICF. “Airlines are by their nature diversified enterprises. They can withstand a loss of traffic on a single route or region but where the airlines get hit is when the fear makes people cancel or postpone trips.”


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