Airline stocks are hitting some heavy turbulence today. Shares of Delta Airlines (NYSE:DAL), United Airlines (NASDAQ:UAL) and American Airlines (NASDAQ:AAL) are down a whopping 4%-5% in early afternoon trading on news that flights have been halted to Tel Aviv from key American cities.
Considering the geopolitical situation in the region, this move is not entirely unexpected. After all, airlines have a responsibility to keep their staff and passengers safe. When missiles are flying, and there’s no indication of when this turmoil may end, it’s simply not a smart move to put the company’s staff, passengers, and planes in harm’s way.
Over the weekend, Hamas launched a surprise attack on Israel, and the latter has since responded in force. Hamas launched thousands of rockets from Gaza into Israeli towns, which coincided with a ground assault that involved the taking of numerous Israeli hostages. Already, fighting has killed hundreds on both sides in recent days. Israel’s Prime Minister Benjamin Netanyahu has declared war on Hamas and has already begun a major bombing campaign against the Gaza Strip. All this is signaling we could be in for some very intense fighting in the days and weeks to come.
With geopolitical uncertainty ratcheting up to even higher levels, let’s dive into what investors should make of this mess.
Airline Stocks Plunge on Geopolitical Concerns
For investors in airline stocks, this geopolitical strife is noteworthy for more than just the lost revenue from key routes to the Middle East. Certain countries have been off-limits for some time now, with Syria’s civil war and other restricted airspace regions in the Middle East forcing airlines to adjust their flight paths when crossing key areas. This will be the latest disruption for airlines and one that will continue to be costly.
Additionally, it’s worth noting that the price of oil surged as a result of this conflict today. Jet fuel, a direct byproduct of crude oil, has also jumped, providing yet another headwind to profitability for these airline stocks. Despite continued robust demand for flights, higher input costs have hurt margins for major airlines. It appears the inflationary pressures seen last year aren’t in the rearview mirror yet, with this war the latest catalyst for high oil prices.
Overall, the combination of delayed and canceled flights, as well as a surge in input costs for airlines, has investors scrambling to assess what the damage may be in the coming days and weeks. To be honest, it’s hard to predict exactly which direction airline stocks will move from here. That said, given the overly cautious nature of the market of late, I’m not surprised to see this level of selling pressure materialize today.
On the date of publication, Chris MacDonald 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.
