The news about the coronavirus rattled U.S. airline and travel-related stocks this week, with headlines about the return of travel bans in several countries, leading to concerns about the industry's recovery during a strong Thanksgiving travel season.
The World Health Organization designed omicron as a variant of concern on Friday, as the U.S. and several other countries imposed travel bans from countries in southern Africa. The organization has called for a calm, coordinated and coherent world response to the variant, as studies to better understand the mutations are under way.
The stocks of major U.S. airlines showed some resilience initially, but were among the worst hit in Tuesday s selloff. Global Jets Exchange Traded Fund JETS, has lost 3% this week, with its stocks of U.S. airlines more exposed to international travel, such as American Airlines Group Inc. AAL, and United Airlines Holdings Inc., underperforming.
Travel restrictions hit the right as U.S. travelers took off on domestic routes at the same pace as in 2019 according to TSA checkpoint data. Travel in Europe, which had benefited from the reopening of the trans- Atlantic market in early November, saw declines even before the omicron news that several European countries were struggling with a wave of rising COVID 19 cases.
Peter Arment, an analyst with Baird, said Omicron represents a small disruption at the moment, as the path that the variant might take in countries with higher vaccination rates is unknown.
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Domestic travel is likely to be on track, although there is concern that the headlines might cause some people to hold off on plans for spring travel, he said.
The decline in U.S. airline stocks in June and July is tied to concerns about the delta variant, according to Jefferies analyst Sheila Kahyaoglu.
She said that we wouldn't expect the same fall with this outbreak, as stocks were already trading at the lowest levels since February 2021.
If omicron spreads as much as delta, there will be an effect on travel and demand, but that doesn't change the medium-term expectations about U.S. airlines, Kahyaoglu said.
We continue to think that airline balance sheets are not at risk and will be able to navigate the impact of a variant on air travel. According to Kahyaoglu, Delta Air Lines Inc. DAL is favored by U.S. airlines, despite 15% exposure to Transatlantic travel and Southwest Airlines Co. LUV, given its domestic U.S. exposure at about 95%.
Domestic travel has been a driver of the U.S. travel industry recovery, but at least for the time being omicron is impacting long-haul international travel to some specific markets, said Peter McNally, an analyst at Third Bridge.
These markets are served by widebody aircraft that have only been redeployed recently to begin service. Aircraft can be redeployed where needed and these widebodies have only recently been moved into these impacted markets, he said.
McNally expects American, Delta, and United to report fourth-quarter revenues that are still 20% to 30% below the same period in 2019, with JetBlue Airways Corp. JBLU, about 10% off its pre-COVID pace and Spirit Airlines Inc. SAVE expected to show a full recovery.
He said that the major carriers still have the gaps in business and international travel to fill before they can see revenues fully restored.
One of the new challenges brought about the Pandemic is that people are booking travel with less advance time than in the past, making it harder for airlines to plan. He said airlines are facing the same labor shortages and challenges as other service industries.
The U.S. airlines are expected to report fourth-quarter results in late January.