With a federal government shutdown looming, airline stocks could be negatively affected by the closure. That’s because, although air travel wouldn’t be canceled during a shutdown, air traffic controllers and other government employees who facilitate air travel will not be paid during the shutdown.
The latter situation, in turn, could create more delays for travelers.
An Air Traffic Controller Shortage
There’s already a significant air traffic controller shortage, and the controllers will not be paid during a government shutdown. The latter situation could exacerbate the shortage by causing some of the controllers to not show up for work. Further, these employees will be less incentivized to work overtime because they may not receive the extra pay for doing so for several weeks.
Similarly, Transportation Safety Administration (TSA) workers will not get paid during a shutdown, and many of them could also decide not to report to work, causing security line waits to be significantly longer than normal.
The Outlook for Airline Stocks
The demand for domestic flights has been declining, although the number of Americans looking to fly to international destinations is increasing, CNBC reported last month. The average price for a round-trip domestic flight had sunk 11% year-over-year. However, the average price of an international flight is up 10%.
Moreover, Southwest’s (NYSE:LUV) net income fell 10% year-over-year in the second quarter, while Delta (NYSE:DAL) cut its Q3 earnings per share outlook to $1.85 to $2.05 from $2.20 to $2.60.
Also noteworthy is that, after oil prices climbed recently, airlines’ fuel costs have surged a great deal.
Given all of these points, in conjunction with the looming government shutdown, airline stocks are unlikely to perform well in the near-to-medium term.
As of this writing, Larry Ramer did not hold (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.
