Ebola Fears Haven't Hampered U.S. Airlines YetBy
Delta Air Lines had a reassuring message Thursday for investors: The spread of the Ebola virus to the U.S. has not dented ticket sales.
Delta, the first big U.S. airline to discuss its summer, had another financially robust performance in the third quarter and is poised to see profit margins expand further as fuel costs drop. Crude oil prices have collapsed in recent weeks as U.S. oil production surged and OPEC nations cut their prices instead of production.
The darkest cloud on the airlines’ generally sunny horizon, however, could be consumers’ fears of Ebola migrating from West Africa into Europe and the U.S. through commercial air travel. A Dallas nurse who tested positive for the virus flew this week on a Frontier Airlines flight from Cleveland, raising further worries for many people about the disease and about whether airlines are vulnerable to spreading infections.
That prospect, remote as it may be, could be a case where the perception of risk outpaces reality and could lead to “a short term dip in demand,” Standard & Poor’s analyst Jim Corridore says. “Some parts of the media have been wildly irresponsible in reporting this,” he said. “They’re turning this into something that it’s not.”
Despite the dramatic decline in oil prices, shares of the four large U.S. airlines have tumbled in the past month, with Delta declining more than 17 percent, United off almost 15 percent, American slipping more than 10 percent, and Southwest down 12 percent. American, the world’s largest airline, has no flights of its own to Africa. “The market has clearly focused on headlines while ignoring fundamentals,” Cowen & Co. analyst Helane Becker wrote in a client note Thursday, Oct. 16., suggesting that the price decline will prompt Delta to buy back shares more aggressively. Corridore also reiterated his “Strong Buy” rating on Delta stock, calling any investor fears of Ebola “overblown.”
The virus didn’t merit mention in Delta’s news release (pdf), but executives discussed the issue briefly in their call with analysts and reporters. Delta Chief Executive Richard Anderson said he is confident the Centers for Disease Control & Prevention is handling the U.S. Ebola response properly. “We are well-versed at managing these types of events to ensure the safety of our customers and crews,” said Gil West, Delta’s chief operating officer.
Delta officials said they have seen no efforts by pilots or flight attendants to avoid working the airline’s nonstop flight between New York and Accra, Ghana, a route that has seen lighter traffic. Delta ended its flights to Liberia earlier this year. United has said it hasn’t seen large drops in passenger loads for its daily flight from Houston to Lagos, Nigeria. Both routes are used heavily by business travelers, and neither country has experienced a large outbreak of Ebola.