This Airline Stock Surge Is Nothing But a Sucker’s Rally

Airline stocks rallied after a coronavirus stimulus deal was reached in Congress. But the business environment does not warrant this surge.
Posted in: MarketsOp-ed
Published:
March 25, 2020 2:34 PM UTC
  • The airline sector will get $29 billion if the $2 trillion stimulus deal makes it through Congress.
  • Air travel continues to be ravaged by the coronavirus pandemic as massive flight cancellations continue.
  • Airline stocks bulls are ignoring the gloom the sector faces.

U.S. airline stocks are one of the beneficiaries of the $2 trillion stimulus package that congressional leaders struck early this morning.

Investors cheered the news that airlines would get $25 billion in direct assistance. Air cargo carriers will receive $4 billion.

Big Three airline stocks American (black), Delta (red), and United (blue) have surged in response to Congress’ $2 trillion stimulus package. | Source: Yahoo Finance

“Big Three” airlines American, Delta, and United have seen their share prices soar over the past two days, primarily due to optimism over the stimulus package.

Airline stock investors should enjoy the rally while it lasts.

Big 3 airline stock rally won’t last

While the financial aid will plug the cash shortfall pummelling some of the airlines, the business environment isn’t getting better. And the coronavirus pandemic is only getting worse.

Per FlightStats, flight cancellations are mounting. Over the past few days, the number of canceled flights in the U.S. has averaged 9,000 daily.

Over 9,000 U.S. flights are being canceled daily. | Source: FlightStats

More than 60,000 flights in the U.S. have been canceled over the past month, while 103,000 more have been delayed.

Over 100,000 flights were canceled in the past 30 days. | Source: FlightStats

More turbulence for airlines amidst coronavirus pandemic

This massive revenue loss will only get worse as the coronavirus case toll increases in the United States.

With borders closing around the globe, domestic travel was the sector’s last refuge. But even this lifeline is at risk due to measures designed to check the spread of COVID-19.

Alaska, Florida, and Hawaii have ordered all visitors and residents arriving at state airports to undertake a 14-day self-quarantine, a move likely to discourage domestic air travel.

Source: Twitter

Other states are likely to follow suit as coronavirus cases in the U.S. approach the 60,000 mark.

Reduced airline revenues on lower passenger count

But airlines would still face headwinds even if consumer demand wasn’t plunging.

Public health recommendations have led carriers like American Airlines to block half of all middle seats on every flight. So even if flights were miraculously fully booked, social distancing measures would severely limit potential revenues.

A complete halt to air travel remains a genuine possibility too. According to The Street, airlines have mulled voluntarily suspending commercial flights. They may be left with no choice if coronavirus transmission forces the closure of air-traffic control facilities.

So while airline stocks may be reveling in the green today as a result of the $2 trillion U.S. stimulus package, investors should see this for what it is: Nothing but a sucker’s rally.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.

Josiah Wilmoth edited this article for CCN.com. If you see a breach of our Code of Ethics or Rights and Duties of the Editor or find a factual, spelling, or grammar error, please contact us.

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Mark Emem @wetalkmarkets

I cover business and the stock market for CCN. Currently based out of Nairobi, Kenya. Feel free to get in touch with me. Email: wetalkmarkets[at]yahoo.com