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Will Florida Mass Shooting Hurt U.S. Airline Stocks?

Tragedy struck Jacksonville, FL, on Aug 26, when a man opened fire in a restaurant where the video game tournament was being streamed online. Unfortunately, two people were killed and nine injured following the gunfire. Two more persons suffered injury while trying to flee the site. Also, the shooter, believed to be David Katz of Baltimore, shot himself after the massacre.

Currently, this incident is under investigation. Although no motive has been established yet, sadly such episodes of violence are on the rise in the United States. Notably, in Florida, such cases of mass shooting are rising at an alarming rate, including the deadly shootings at a high school in Parkland earlier this year and at the Fort Lauderdale Airport last year.

Will Air Travel Demand to Florida Slacken?

As Florida boasts many attractive tourist destinations, air travel to and from the state helps in generating significant amount of passenger revenues for airline players. In fact, the Jacksonville International Airport in Florida is one of the busiest airports in the country, attracting huge traffic. All major airlines including the likes of Delta Air Lines, Inc. DAL , American Airlines Group Inc. AAL , Southwest Airlines Co. LUV and JetBlue Airways Corporation JBLU have operations there. However, the big question is whether the latest mass shooting will adversely impact air travel.

It is a well-documented fact that acts of terrorism have the potential to ground airline stocks due to the possibility of waning travel demand due to security fears. Given this backdrop, we expect U.S. airline stocks to shed value due to waning travel demand to Florida, at least in the short term. This, in turn, is likely to adversely impact the top line as well. Nonetheless, only time will tell the extent to which revenues are actually hurt.

Tropical Storm Lane Impedes Travel

As if the mass shooting induced uncertainty on travel demand was not enough, a recent natural disaster led to the cancellation of multiple flights. Hawaii was recently hit by tropical storm - Lane. The island was battered by torrential rains due to the natural calamity, which has now thankfully moved away from Hawaii.

Following this calamity, many airlines including Hawaiian Holdings, Inc. HA announced waivers to passengers to and from the island. Moreover, some carriers including United Continental Holdings, Inc. UAL have reportedly added flights to meet the surge in demand.The company carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

This is not the first time that airline operations have been disrupted due to a storm. Earlier, such acts of nature have thrown the schedules of carriers out of gear, causing multiple flight cancellations.

Winter storm Grayson had impeded travel earlier this year. Moreover, the back-to-back hurricanes (Harvey, Irma and Maria) dented airline operations significantly in 2017. Prior to that, winter storm Stella had crippled airline operations considerably by impeding travel. In 2016, Hurricane Matthew had spelt doom for airlines, causing extensive damage.

Airlines Already Reeling Under Multiple Headwinds

Increasing fuel costs has hurt airline stocks big time. Oil prices have risen roughly 10% year to date. Since expenses on fuel are significant for airlines, rise in oil prices is unfavorable for the space.

In fact, the bearish forecast by the International Air Transport Association ("IATA") on current-year airlines' profitability highlights the fact that the woes are likely to continue for carriers. The research firm predicts global net profit for the industry to be $33.8 billion, much lower than the 2018 profitability forecast of $38.4 billion, unveiled in December 2017. Escalating oil prices apart, labor costs, customer-related issues and capacity-related woes are hurting airlines.

Industry Underperformance YTD

Judging by shareholder returns on a year-to-date basis, it seems that the above-mentioned headwinds have led to investors' pessimism surrounding the space.

The Zacks Airline industry , which is part of the broader Zacks Transportation Sector , has underperformed both the S&P 500 and its own sector year to date. While the stocks in this industry have collectively lost 14.2%, the sector has gained 0.2% of its value. Meanwhile, the Zacks S&P 500 Composite has rallied 9% in the same time period.

YTD Price Performance

Zacks Industry Rank Highlights the Struggles

The group's Zacks Industry Rank , which is basically the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term.

The Zacks Airline industry currently carries a Zacks Industry Rank #211, which places it at the bottom 18% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

With the sector already reeling under the above-mentioned headwinds, if travel demand to and from Florida slackens due to Sunday's mass shooting, airline stocks will receive a further blow. Therefore, we expect investor focus to remain on this issue.

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Southwest Airlines Co. (LUV): Free Stock Analysis Report

Delta Air Lines, Inc. (DAL): Free Stock Analysis Report

Hawaiian Holdings, Inc. (HA): Free Stock Analysis Report

American Airlines Group Inc. (AAL): Free Stock Analysis Report

United Continental Holdings, Inc. (UAL): Free Stock Analysis Report

JetBlue Airways Corporation (JBLU): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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