United, Delta, American, Southwest Airlines stocks managed to rise yesterday as the economy has started to reopen.
It has been a quarter of nemesis for the airline and travel industry as the coronavirus pandemic stirred the compulsory temporary lockdown of businesses with the closure of borders both local and international. The grounding of flights and travels plunged air travel operators to witness losses as some have never recorded before. These losses came as a result of halted patronage as well as a refund of tickets booked before the lockdown was imposed. These airlines have started experiencing a positive bounce in their stocks price as the potentials of travels become imperative with the reopening of the economy.
How Bad Airline’s Suffered Amidst the Lockdown?
The enormity of the economic effects suffered by airlines can not be overestimated. There is no doubt that the effects of the coronavirus are positively skewed towards some sectors that benefitted from the lockdown. A perfect example is in the Zoom App’s relevance during the lockdown. To highlight better how airlines suffered during the lockdown, we may draw insights when we compare the market capitalization of Zoom Video Communications Inc (NASDAQ: ZM) to the 7 biggest airlines in the world. Zoom recorded a market capitalization of $48.78 Billion while the combined market capitalization of the top 7 airlines stood at $46.21 trillion as of May 2020. While this data gives a snapshot of the shrink in the market values of airlines, it also pre-informs the cry by airlines to seek bailouts from the government. Brian Pearce, Chief Economist at the International Air Transport Association IATA duly noted that:
“Only 30 airlines drove the improvement in profitability that we saw in the last 10 years, Obviously, there are a number of airlines that are in a much stronger position to weather this lack of revenues but the majority are in a very fragile place.”
These also give an adequate snapshot of the state of affairs for most members of the IATA
Airlines Stocks Rebounding, Clamor for Hope
With the gradual increase in the demand for air travel, the stocks of most U.S based airlines have started climbing. For example, Spirit Airlines (NYSE: SAVE) stocks increased by 10% on Monday by 11 am, Delta Air Lines Inc (NYSE: DAL), Southwest Airlines (NYSE: LUV), and other popular airlines profiled by Barrons all traded with a promising increase in the stock values. United Airlines Inc (NASDAQ: UAL) has gained around 5% and American Airlines Group Inc (NASDAQ: AAL) has jumped by 5.81%.
The U.S. government doled out about $25 billion in the bailout to airlines back in May to enable them to balance their books. We can hope that airline operators can utilize these funds as well as the reopening of the economy to achieve balanced revenue generations. It is also anticipated that they will continue to contribute to the economy in the form of tax and employment of labor. All concerted efforts rekindle hope for a better economic future post-COVID-19.
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