Airline stocks sold off Monday in wake of the mass shooting in Orlando because investors worry that acts of terrorism take a toll on the travel industry.
Although they’re right that such acts hurt airlines, the response to such events is really overdone. The market values lost are far in excess of any impact to the top or bottom lines.
Shares in Delta Air Lines, Inc. (DAL), United Continental Holdings Inc (UAL), American Airlines Group Inc (AAL), JetBlue Airways Corporation (JBLU), Southwest Airlines Co (LUV) fell between 2% and 5% in Monday trading.
That equates to several billion dollars of lost shareholder value, and yet the entire travel industry — airfare, hotels, car rentals and associated services — are thought to have cost the industry $8.2 billion in all of last year, according to data site YouGov and ProLogis, an aviation consultancy.
Airline Stocks Have Bigger Problems
That makes this sort market action sure sound like a disproportionate response. It also happens to be the case that the market usually gets over terrorist attacks pretty fast. Shares in major airlines are having a poor 2016, but that’s because of the price of crude oil, which is inversely correlated with the sector.
It sounds perverse — cheap oil saves airlines tremendous money — but it stokes fears that they’ll expand capacity and crush fare prices.
Oil prices, as well as the sluggish-to-outright crappy global economy, are much bigger risks to airlines stocks than a mass shooting in Orlando, as horrible as that event is.
The market knows this, but still has to bake it in. Expect airline stocks to recoup their losses in the coming sessions.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.