- Airline stock performance has been a reliable indicator of recession, and they are down 30% in the last ten days alone.
- The last time airlines dropped this fast was 9/11. They posted similar declines amid the 2007 financial crisis.
- The World Bank estimates that a global pandemic could shave $3 trillion off global GDP – equivalent to a World War.
Airline stocks are leading the market down with a staggering 30% decline in the last ten days alone. The last time this happened was the aftermath of 9/11 when the airline industry led the wider market into a massive recession. It looks like history is repeating itself.
As coronavirus cases top 100,000, the world may be on the verge of economic catastrophe. According to the World Bank, a massive pandemic could have the same impact as a Global War.
The Travel Industry is Getting Battered
It shouldn’t come as a surprise to see travel industry stocks taking the brunt of the coronavirus crisis. An airplane is one of the last places you want to be with a deadly virus going around. Tight spaces combined with recycled air and sleep deprivation are a recipe for disaster.
Consumers are making a rational decision to avoid travel until the situation blows over. And we have no idea how long that will take.
On top of consumer sentiment, government intervention is also causing problems for the airlines. Travel restrictions to contain the coronavirus are expanding with governments around the world placing arrival bans on hard-hit countries and requiring others to quarantine. Business travel is also falling with major firms cutting back on non-essential trips.
Airline Stocks Are Crashing Back to Earth
According to the International Air Transport Association (IATA) airlines could lose $63-$113 billion in passenger traffic revenue globally in 2020, depending on how fast the coronavirus spreads.
The hardest-hit airlines (in terms of revenue) will be the ones that depend on China flights like China Southern (NYSE: ZNH) and China Eastern ( NYSE: CEA). For now, U.S-based carriers are seeing worse stock performance than their Chinese counterparts.
Big names like United Airlines (NASDAQ: UAL), Southwest Airlines (NYSE: LUV), and American Airlines (NASDAQ: AAL) lead the industry downward.
This Could Be an Omen for Recession
According to David Rosenberg of Rosenberg Research, airline stock performance has historically been an indicator of recession. The last time the market saw moves like this was in the aftermath of 9/11 and the financial crisis in 2007.
According to data from the World Bank, a global disease pandemic could delete up to 5% of global GDP – a sum worth over $3 trillion. The organization rates the potential impact alone side that of a theoretical World War Three.
They state the following in a 2013 report:
A severe pandemic would resemble a global war in its sudden, profound, and widespread impact.
So far, the airline industry isn’t alone in facing coronavirus challenges. The wider market is in correction territory with major U.S. indices down around 10% from late February. Stock markets in Asia and Europe are down significantly with Japan’s Nikkei and Germany’s DAX also posting double-digit declines
This article was edited by Sam Bourgi.