By Rachel Lerch
News of the Coronavirus outbreak is vastly spreading across social media platforms spurring fear and unease globally. Many are cancelling trips; students are being sent home from study abroad programs, and countries are halting travel to areas where the coronavirus is widespread. As of February 21, 2020, airlines have cancelled more than 200,000 flights and the demand for flights has decreased significantly. The abrupt stop in travel has caused airline stocks to plummet and the Global Business Travel Association warns that coronavirus may cost the travel industry around $560 billion in revenue in 2020.
The impact of the coronavirus is affecting the airlines in the Asia Pacific region and Europe the most. According to the International Air Transport Association (IATA), the airlines in the Asia Pacific region are expected to lose $27.8 billion in revenue and China alone is expected to lose $12.8 billion. The airlines in the countries outside of Asia were expected to lose $1.5 billion in revenue, however, that prediction only accounts for the virus being contained in China. Since the virus has infected Europe, most notably Italy where the number of people infected is greater than 800, the amount in revenue loss is expected to increase.
Before the spread of the Corona Virus, air-travel demand had been growing at twice the pace of the global economy. Now, airline demand is predicted to decline for the first time since the global economic recession of 2009. Generally, investors have treated airline stocks as being high-risk, making them sensitive to negative global and geopolitical developments. The investors perceive the spread of the coronavirus as being high-risk because it is causing a decrease in airline sales, therefore, triggering a widespread “sell” response from investors.
United States airlines have reduced the number of flights to those areas infected by the coronavirus and demand for flights in the U.S. has decreased due to the amount of negative news about the virus shown in the media. Fear of the coronavirus has led to many cancellations of conferences and travel for business, which is the greatest source of income for airlines. There is also a risk that U.S. airlines will see a decrease in travel during spring break and summer which are peak periods. These factors make investors fearful, causing them to sell their stocks. The three big U.S. airlines, American, Delta, and United have felt the negative impacts in the marketplace. As of Monday February 24, American Airlines lost $2.37 a share or 8.52% closing at $25.45, Delta lost $3.64 a share or 6.29%, closing at $54.23, and United Airlines lost 3.26% to close at $75.47. These losses are a response to the increasing number of cases and the recent global spread of the virus. Investors in US and global airlines went on a selling spree out of panic, driving the stock prices down.
According to Buckingham Research analyst Daniel McKenzie, U.S. airlines are in danger of a “financial crisis-type or 9/11-type demand and earnings shock” if the coronavirus continues to spread in the US and Europe. It is hard to say for how long the coronavirus will spread, but the longer it does and the more media coverage it receives, the greater the negative impact will be on airlines and the travel industry into the coming months.