Finance Strategist: Time to Short Airline Stocks as Coronavirus Spreads

The deadly coronavirus is already impacting the financial markets. According to one strategist, airline stocks are doomed. | Image: Daniel Slim / AFP

Global markets strategist David Rosenberg warns it’s over for airline stocks. Fliers are visibly jumpy over fears of an emerging SARS-like virus.
Rosenberg saw “fifty people turn around when somebody sneezes” at the airport Tuesday. He’s “long the manufacturers who make those masks.”
The 2003 SARS outbreak cut global airline traffic in half. The 2009 swine flu pandemic was a rough time for U.S. airline stocks.

David Rosenberg hasn’t seen this much panic in airports since the SARS scare in 2003. The global strategy consultant paints a grim picture for airline stocks in 2020.

Source: Twitter

In the mentions, a helpful follower said, “try 3M.” 3M Company (NYSE:MMM) is a notable manufacturer of surgical masks. The quip about masks may have been tongue in cheek, but the threat to airline stocks as well as human lives is no joke.

The 2003 severe acute respiratory syndrome (SARS) outbreak killed 774 people in 37 countries. The 2009 swine flu pandemic infected as many as 21% of humans on the planet. And death toll estimates ranged from 151,000 to more than half a million.

Airline Stocks Down On China Virus Fears

Their effect on the airline industry was direct and pronounced. On Tuesday, airlines were already reeling from what could be a repeat of past viral outbreaks.

A SARS-like coronavirus spread by human contact has reportedly claimed six lives in the Chinese city of Wuhan. As world health officials scramble it looks like SARS again.

American Airlines (NASDAQ:AAL) was down 4.2% Tuesday. Delta Airlines (NYSE:DAL) had dropped 4.4% by mid-afternoon, rallying to a 2.7% loss by the closing bell. United Airlines (NASDAQ:UAL) plummeted 4.4%.

But Chinese airlines suffered the worst. China Southern Airlines (NYSE:ZNH) was down 9.8% Tuesday. China Eastern Airlines (NYSE:CEA) had lost 10.4% by the closing bell. Hong Kong’s Cathay Pacific (OTCMKTS:CPCAY) was down 4.7%.

The broader stock market lost ground Tuesday as well over virus fears.

How SARS and Swine Flu Affected Markets

Air travel was devastated by the SARS epidemic in 2003:

During the SARS outbreak, which began in China and quickly spread to Hong Kong, Taiwan and Singapore, global airline traffic halved.

Just one U.S. airline, the now-defunct North American Airlines, lost around $1 billion in revenue because of SARS. Asia Pacific Airlines lost around $6 billion in 2003.

The catastrophic events of 9-11 and the SARS outbreak led to an average of more than one major U.S. airline bankruptcy a year from 2001 to 2005.

We don’t have much data on how major airline stocks were affected by SARS. The three biggest U.S. airlines hadn’t yet gone public in 2003. And American Airlines wasn’t publicly traded at the time of the 2009 flu pandemic. But Delta Airlines and United Airlines were.

From the time the CDC warned of the “novel H1N1 flu” on Apr 15, 2009, until it officially declared a pandemic on Jun 11, 2009, Delta Airlines stock dropped 5.96%. United Airlines went into a 25% free fall over the same period.

But both stocks recovered dramatically. The each closed the year over 100% higher than their June lows. Rosenberg jokes about shorting airline stocks, but now or sometime soon might be a good time to buy. Investors looking for airline exposure have a window of opportunity to buy in at value.