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US Carriers Sell Off in Wake of Orlando & Shanghai Attacks

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Shares of major airlines stocks like Delta Air Lines, Inc. (DAL - Free Report) , United Continental Holdings (UAL - Free Report) , Southwest Airlines (LUV - Free Report) , American Airlines Group (AAL - Free Report) and JetBlue Airways Corporation (JBLU - Free Report) nosedived following the mass shooting at a nightclub in Orlando and an explosion at the Shanghai Pudong airport on Jun 12. With airline stocks plummeting on the twin acts of terror at different ends of the globe, the NYSE ARCA Airline index declined 2.69% to $84.45 on Jun 13.

Orlando Mass Shooting

In the early hours of Jun 12, an individual by the name Omar Mateen opened fire at a nightclub in Orlando, FL. The indiscriminate act of terror, described as the worst mass shooting in the history of the U.S., claimed at least 50 lives and injured around 53. Those dead included the gunman.

Such acts of terrorism impact airline stocks as there is a possibility of waning travel demand due to security fears. The timing of the attacks could not have been worse as the three-month period between June and August has been predicted to be the busiest one for U.S. carriers in terms of air travel.

According to the forecast released by the Airlines for America (‘A4A’) last month, approximately 231.1 million passengers will supposed to be transported by various U.S. carriers during the above mentioned period. This translates into a daily traffic of 2.51 million, up 4% year over year.

TRANSPORTATION-AIRLINE Industry Price Index

TRANSPORTATION-AIRLINE Industry Price Index

Shanghai Airport Explosion

Another violent act occurred in China on the same day, dampening the spirits of airlines. Four people were apparently injured at Shanghai's Pudong International Airport when a certain Zhou Xingbai threw an explosive laden bottle at a check-in counter. Following the incidence, the attacker tried to kill himself as well.

The above explosion highlights the necessity to tighten security at airports. In the wake of the attack, Chinese carriers like China Eastern Airlines Corp. Ltd. (CEA - Free Report) lost value on Jun 13.

Terror Attacks Spell Doom for Airlines

There have been quite a few acts of terror across the globe over the past few months. Last November, the Paris attacks resulted in multiple casualties and injured many individuals. Shares of carriers like Air France-KLM Group were dealt a heavy blow by the act. The Brussels attacks in Mar 2016 also hit stocks in the sector. Furthermore, the EgyptAir tragedy last month resulted in a downward movement for airline stocks.

Following the terror attacks in Paris and Brussels, the U.S. State Department issued a global travel alert on May 31 to U.S. citizens citing the possibility of more terrorist attacks. The alert has primary been issued as Europe is likely to attract many tourists during the European Soccer Championship currently being held in France and the Catholic Church's World Youth Day scheduled to be held in Poland next month.

Meanwhile, European carrier Ryanair Holdings (RYAAY - Free Report) recently stated that it expects airfares to face pressure due to the terror attacks which have a direct impact on travel demand in Europe. Moreover, travel company, Thomas Cook revealed a 5% decline in summer bookings last month compared to last year.

The Bottom Line

Even though airline stocks are benefiting immensely from the oil price slump, acts of terrorism continue to hurt stocks in the space. In fact, even the International Air Transport Association (IATA) has stated that it expects passenger travel growth (6.2%) in 2016 to be less than that recorded in 2015 (7.4%).

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