For Southwest Airlines, Don’t Ignore the Lessons of 9/11 Post Pandemic

“It’s another great day for American jobs and American workers.” That’s according to Vice President Mike Pence, proudly boasting about the surprisingly robust August jobs report. On paper, nonfarm payrolls increased by 1.37 million and the unemployment rate dropped to 8.4%. With the enthusiasm, Southwest Airlines (NYSE:LUV) suddenly looks interesting. Since the second half of August, LUV stock has been climbing steadily higher.

Source: Markus Mainka /

Of course, the good news wasn’t just isolated to Southwest. From the giants like Delta Air Lines (NYSE:DAL) to discount specialists like JetBlue Airways (NASDAQ:JBLU), the sector justified the bullish speculation that it enjoyed when the positive economic data was released. As well, new daily novel coronavirus cases have fallen significantly from July’s peak. Therefore, investors may be tempted to pull the trigger on LUV stock and the like.

However, if you’re in that position, you may want to cool your jets for just a second. Though the seemingly logical rise in the airliners is encouraging, we’ve seen this narrative play out before during the Sept. 11 terrorist attacks.

History Repeating for LUV Stock

Weeks prior to the event that forever changed our world, LUV stock was actually fading. At the time, regional air carriers were struggling due to a languishing economy. When 9/11 happened, the airliners — and everything else — experienced a shock low. This is not dissimilar to what happened with the Covid-19 pandemic, when stocks started falling before hitting a bottom sometime in March.

Further, the post-9/11 recovery delivered multiple head-fakes as investors attempted to buoy the markets. But for the air carriers, the fear of terrorism substantially hurt demand. It wasn’t until roughly three years later that the industry matched pre-attack passenger volumes.

Possible Harsh Lessons

Fundamentally, the similarities between the 9/11 era and this present Covid crisis, at least as it relates to LUV stock, is eerie. According to the Bureau of Transportation Statistics, in August 2001, the “airline industry experienced what was then a record high in the number of airline passengers for a given month when 65.4 million travelers took to the air.”

Contrast this with current days: At the end of 2019, worldwide revenue for the air travel industry hit $612 billion, an all-time high. Out of nowhere, the coronavirus struck, sinking air travel to shocking depths. But if this wasn’t enough to worry you, consider the technical similarities of LUV stock during the 9/11 crisis and the Covid-19 pandemic.

Juxtaposing the year-to-date performance of Southwest to the period between the beginning of September 2001 to the second-to-last week of February 2002, I discovered a correlation coefficient of 52%. Admittedly, that’s not the strongest relationship but it is within the range of what would be considered statistically significant.

LUV stock: 9/11 attack vs. Covid-19 crisis
Click to Enlarge
Source: Chart by Josh Enomoto

Moreover, the period between the end of September 2001 to that period in February 2002 features a correlation coefficient of 81%. But I’m not here to just throw some numbers at you. Clearly, you can see for yourself (above) the similarities in price action as LUV stock responds to the two crises.

Warranted Skepticism

Critically, if history is any guide, you should be somewhat skeptical about buying Southwest stock based on the jobs report. Following 9/11, investors also pushed LUV dramatically higher before shares eventually tumbled. Likely, the realities of consumer fear walloped the sector.

Frankly, it’s at least possible that the same thing can happen with Southwest at this juncture. Therefore, I would think carefully before engaging LUV or the other airliners.

Lasting Effects

I’m not really sure if the world will ever get over 9/11 in my lifetime. That awful tragedy is permanently etched into our memory, even if it happened so long ago. Additionally, the attack changed how we approach air travel security protocols.

Unfortunately, from a convenience standpoint, we may see a similar situation with the coronavirus, if not a worse outcome. As you know, you’re very unlikely to be a victim of terrorism. But getting infected with an illness due to being in close proximity to someone? That stuff happens all the time — it’s called flu season.

Combined with the hysteria and the politicization of the Covid-19 pandemic, it’s possible that airliners could at least take three years to recover from this mess.

That’s not to say that you should avoid LUV stock like the plague. However, before you bet the farm on this recovery narrative, keep in mind that the worst may not be behind us.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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