Airline Stocks Lose $4.9 Billion as Investors Weigh Travel Ban

  • S&P 500 airline index loses 3.8% this week, more than market
  • Prospect of retaliation, compliance expenses weigh on shares

Were Airlines Blindsided By Trump Travel Ban?

In two days, President Donald Trump’s travel ban wiped out $4.9 billion in market value for the country’s biggest airlines.

The Standard & Poor’s 500 airline index slumped 3.8 percent combined on Monday and Tuesday, five times the 0.7 percent drop in the S&P 500. American Airlines Group Inc., the world’s biggest carrier, led the industry group with a 5.8 percent decline over the two days.

The developments hold several concerns for investors. One is that the U.S. restrictions would expand or spark retaliation by other nations; another, outlined by the International Air Transport Association, is the prospect of higher costs for carriers to enforce the rules, and potential ramifications if they don’t. While it’s hard to quantify, there’s also a risk that some people will forgo travel to the U.S.

“To the extent that America is becoming a less welcoming place, a less hospitable place, that could hurt leisure travel demand,” said Jim Corridore, an airline analyst at CFRA Research. In a similar vein, Cowen & Co. analyst Helane Becker wrote in a note that any financial hit to U.S. airlines probably will come through their international alliance partners, who provide passengers to the U.S. carriers for connecting flights.

Airlines were caught in a whirlwind starting Friday evening after the Trump administration set temporary restrictions on entry to the U.S. from seven countries it said had ties to terrorism. Because the decree came with no warning, some U.S.-bound travelers had to be barred from getting on planes and others who were already en route were denied entry. Protesters decrying the ban as anti-American and anti-Muslim swarmed airports, adding to a chaotic weekend.

“Crews, reservations agents and airport teams have witnessed turmoil in our airports that shows how divisive this order can be,” Doug Parker, American’s chief executive officer, said in a letter to employees. “It is the current law of the U.S., and so long as that is the case, we must comply.”

IATA, the trade group for major carriers, asked the U.S. government for clarification. Trump’s executive order “placed additional burdens on airlines to comply with unclear requirements, to bear implementation costs and to face potential penalties for non-compliance,” the group said in a statement this week.

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