Airline stocks and other travel-related equities are getting hit hard today as a new variant of Covid-19 has prompted several European countries, including the United Kingdom and Germany, to impose new travel restrictions.
Stocks of leading carriers, including American Airlines (NASDAQ:AAL), Delta Airlines (NYSE:DAL), and United Airlines (NASDAQ:UAL), are each down more than 5% in early morning trading today as fears grow that new lockdown measures and travel restrictions will be imposed around the world. This comes after a new, more contagious variant of Covid-19 has emerged in South Africa, with one case of the variant also reported in Israel.
What Happened With Airline Stocks
Stock markets around the world are plunging today on news that a potentially more deadly variant of Covid-19 has emerged in South Africa. As the World Health Organization (WHO) convenes an emergency meeting in Geneva, Switzerland to discuss and examine the new variant, markets in Europe had their worst session in more than year. In Asia, Japan’s Nikkei 225 and Hong Kong’s Hang Seng index each fell more than 2%.
In the United States, the Dow Jones Industrial Average is down 2.6%, while the S&P 500 is down 1.9% and the Nasdaq Composite is down 1.6%. However, airline and travel stocks appear to be taking the brunt of the decline as governments across Europe reacted swiftly to the new Covid-19 variant. The U.K. and Germany are already blocking flights from South Africa. Other countries such as France and Italy have announced temporary travel bans from southern Africa, while Asian nations such as Singapore and Japan announced plans to broadly tighten their border controls.
The variant has been labeled B.1.1.529.
Why It Matters
The travel and tourism sector was arguable hardest hit by the pandemic, and airline stocks were only now beginning a tentative recovery. American Airlines, the largest carrier in the world with more international flights than any other company, has been particularly hurt. Before today’s selloff, AAL stock remained more than 30% below its pre-pandemic level. Many airlines were forced to take on huge amounts of debt during the pandemic and also took financial aid packages from the federal government that amounted to $54 billion.
American Airlines alone saw its debt swell to $40 billion over the last year and a half. That countries around the world may once again close their borders to international travelers and reimpose lockdown measures is terrible news for airline and travel companies, and comes at the worst possible time. The situation could also hurt taxpayers if governments are again forced to bail out the airlines in the face of new travel restrictions. How bad things ultimately get with the new Covid-19 variant remains to be seen. But the initial reaction is harming airline and travel stocks today.
All eye will be on the World Health Organization and its emergency meeting in Geneva today. An update from the WHO on the new variant will either reassure markets or could lead to an even greater selloff, depending on how contagious and deadly the new variant proves to be. For now, airlines and other travel stocks look likely to continue falling as investors react to the latest pandemic news.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.