The Coronavirus pandemic is upon Europe as the World Health Organization officially declared it as the new epicentre of the COVID-19. When Trump declared a state of emergency on Friday, the situation quickly deteriorated even for US airlines. The situation is only getting worse as Germany and France announced on Tuesday they are closing their borders in an effort to contain the spread.
Consequently, airlines around the globe are canceling flights and letting go of employees while asking for government aid to weather what is certainly the most brutal storm in the industry's history. The question is – are US airlines in the same basket as the European ones?
American Airlines Group Inc. (NASDAQ: AAL), Delta Air Lines Inc. (NYSE: DAL), United Airlines Holdings Inc. (NASDAQ: UAL) and Southwest Airlines Co. (NYSE: LUV) confirmed they are discussing potential aid from the government but they haven't provided any details. According to Bloomberg, the White House is considering letting cash-strapped carriers keep some taxes and fees they collect from passengers, on a temporary basis of-course.
United Airlines reported a 70% drop in domestic bookings over the last several days, while the JetBlue and Southwest compared the impact of COVID-19 to 9/11 as the coronavirus triggered a severe drop in demand for flights up to several months ahead.
A More Optimistic View
On a brighter note, Delta is feeling more confident as its CEO Ed Bastian explained North America accounts for 1/5th of the global airline market but 2/3rds of the profits as he expected the travel restrictions to have a greater financial impact on the European airline industry rather than the U.S. But the situation has changed drastically since Friday and will continue to do so as we don't know what the next day holds. Whichever the case, airlines are in cash preservation mode as last week, United raised $2 billion in credit, Delta $1 billion and American $500 million two weeks ago.
Warren Buffet Is Still Feeling Confident About The Industry
Warren Buffett is standing firmly behind airline stocks despite the recent dramatic turn of events. According to recent filings with the SEC, Buffett's Berkshire Hathaway (NYSE: BRK-A) holds large stakes in several airlines: more than 53 million shares of Southwest,, 42 million shares of American, 21.9 million shares of United, and 71.8 million shares of Delta after it bought almost a million new shares two weeks ago- speaking of support!
Even Buffett admits it is going to be terrible as he says he always felt a pandemic would happen at some time and interrupt progress in the United States and globally. But Buffett predicts ultimately that it will not stop the progress of the US nor the world. After 9/11, airlines witnessed 12 consecutive months of y/y enplanement declines and it took 22 months of consecutive growth to recover. But you cannot compare a Black Swan event of such magnitude especially whenever human lives are on the line. So let's keep our hopes up in the progress of humanity that Buffet believes so firmly in.
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