Airline Stocks Plummet in Friday's Trading: Here's Why

The aviation space started on a positive note this year after being battered in 2020 by the coronavirus-led dwindling passenger revenues. The airline stocks have been performing rather well in 2021. However, news about the spread of the highly transmissible new COVID-19 variant (B.1.1529 strain) is a dampener. The new strain (Omicron) — first identified in South Africa — induced fears of fresh travel curbs and the air-travel demand curve again going down.

Adding to the woes, airline stocks faltered on Friday Nov 26, 2021, causing the NYSE ARCA Airline Index to decline 6.5%. Stocks like Delta Air Lines DAL, United Airlines UAL and Ryanair Holdings RYAAY decreased 8.3%, 9.6% and 3.7%, respectively, on Nov 26 from Nov 25’s closing.

Following the detection of the new variant, the United States decided to suspend and restrict the entry of foreign nationals in the United States. However, the restriction will apply only to the passengers who visited  South Africa, Namibia, Zimbabwe, Botswana, Lesotho, Mozambique, Malawi and Eswatini during a fortnight prior to their landing in the United States.

However, Delta, which currently operates flights connecting Johannesburg with Atlanta (thrice a week), did not make any changes in its schedule as yet. We believe that DAL’s current stance may change if the Omicron variant becomes more of a threat and is found in more countries across the globe. Besides, DAL, currently carrying a Zacks Rank #4 (Sell), announced that those among its passengers who need to alter their travel plans (through Dec 31, 2021) may do so without paying any change fees.

The United Airlines like Delta, is also likely to be hit by the U.S. government’s travel restrictions stemming from the detection of the Omicron variant. The United Airlines and DAL are reportedly the only two U.S.-based carriers currently serving South Africa. UAL, currently carrying a Zacks Rank #3 (Hold), operates non-stop flights connecting Johannesburg with Newark.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United Airlines intends to start flights to Cape Town from Dec 1. Currently, UAL like DAL did not make any announcements of plans to tweak or reduce flights to South Africa due to the Omicron spread. However, any change in schedule cannot be ruled out in the coming days if the new variant becomes more of a hindrance. In the event of such an unfortunate scenario materializing, passenger revenues at UAL that increased more than 300% year over year in the third quarter of 2021, may take a beating in the December quarter.

With COVID-19 cases surging in Europe, European carrier Ryanair Holdings, currently carrying a Zacks Rank #4 (Sell), is naturally feeling the heat. In fact, RYAAY’s CEO Michael O'Leary reportedly warned that following the renewed surge in COVID-19 cases in Europe, Christmas travel and early bookings for summer are likely to be disrupted. Last week, he was quoted saying, “I think it's inevitable we will undermine confidence between now and Christmas, and that will disrupt Christmas and also unsettle people between Christmas and New Year when they would normally start booking their summer holidays."

The detection of quite a few cases pertaining to the Omicron variant in the UK is likely to serve as a further dampener for the Ireland-based Ryanair. In fact, Prime Minister Boris Johnson announced that people arriving in the UK will be required to undergo a PCR test (within the second day of their arrival) and self-isolate until a negative result is available. There are apprehensions that the spread of the Omicron variant is likely to hurt the recently witnessed increase in air traffic at RYAAY. Stay tuned for further updates on the highly contagious Omicron strain and the resultant impact on air-travel demand.

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