It Was a Good Idea to Take Profits on United Airlines

The last time I weighed in on United Airlines (NASDAQ:UAL), I said, “the party is over for airlines, especially with ‘second wave’ coronavirus fears making the rounds.”  That was on June 11, as the UAL stock traded at a high of $36.38.

It Was a Good Idea to Take Profits on United Airlines stock
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Since then, United Airlines stock sank to a recent low of $30.42. The stock has been whipsawing this week.

Its competition hasn’t fared much better. All as the novel coronavirus prevents millions from flying, as Delta Air Lines (NYSE:DAL) just warned.

  • American Airlines (NASDAQ:AAL) fell from a high of $22.80 to $11.69
  • Delta fell from a high of $37.24 to $26.50
  • JetBlue Airways (NASDAQ:JBLU) fell from $15.62 to $10.44
  • United fell from $48.95 to $32.12
  • Southwest Airlines (NYSE:LUV) fell from $37.24 to $26.50

Unfortunately, each could easily see further downside thanks to the coronavirus, which has now infected 13 million people around the world. In the U.S., we have 3.5 million cases. Brazil is up to 1.9 million case. India just passed 960,000. Russia is over 750,000.

That being the case, it’s still a good idea to avoid airline stocks like United Airlines this year. Should economies begin to close up shop again, the UAL stock could revisit $18.18 lows.

The Coronavirus is Going to Get Worse

Without an approved vaccine, the coronavirus could grow far worse. Listen to WHO Director General Tedros Adhanom Ghebreyesus:

“Let me be blunt, too many countries are headed in the wrong direction, the virus remains public enemy number one. If basics are not followed, the only way this pandemic is going to go – it is going to get worse and worse and worse.”

U.S. cities like Atlanta, Los Angeles, and San Diego will keep schools closed this Fall. Businesses throughout California are being locked down. Hospitals are being overwhelmed with patients. All as it appears global economies opened far too soon.

Even worse, Los Angeles Mayor Eric Garcetti could be on the verge of shutting down the city again.

“Let me tell you the bad news,” Garcetti said. “We’ve never had as many people [in L.A.] infected, or infectious. We’ve never had as many recorded positive cases each day, and we’ve never had as many people in the hospital as there are tonight as I speak to you.”

It’s already leading to falling demand for airline travel again, as some U.S. states mandate that some travelers quarantine themselves for 14 days if they’re from pandemic hotspots.

Airlines Are Already Warning of Industry Chaos

Airlines won’t return to normalcy any time soon.

United, for example, just warned 36,000 employees they could be furloughed later this year. All as the outlook for an airline recovery dims as infection rates rise. American warned that close to 40% of its staff could be furloughed, as the pandemic roils the industry.

In addition, Delta just cut its August 2020 flights by half, as the pandemic sours demand.

“Demand has stalled as the virus has grown, particularly down here in the south, across the Sun Belt, coupled with the quarantine measures that are going in place in many of the northern states,” Delta CEO Ed Bastian said. “Those two factors are causing consumers to pause.”

After all, there’s not much they can do.

“Airline executives are warning investors to brace for a bumpy recovery. United recently said in a filing that the company is evaluating and canceling flights on a rolling 60-day basis and expects demand to be ‘suppressed until a widely accepted treatment and/or vaccine for Covid-19 is available,’” wrote Barron’s contributor Daren Fonda. “United expects capacity to be down 75% and 65% in July and August, respectively, and doesn’t expect the recovery to “follow a linear path, as illustrated by recent booking and demand trends.”

The Bottom Line on UAL Stock

If you made money as United Airlines initially recovered, that’s great. Unfortunately, with the never-ending coronavirus story refusing to die, airline stocks like United Airlines could easily plunge lower again.

At this point, your best course of action is to avoid or sell the United Airlines stock, and wait for the madness to end. Down the line, United will present itself as another solid “blood in the streets” opportunity.

Ian Cooper, an contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, he did not hold a position in any of the aforementioned securities.

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