The deadliest mass shooting in modern U.S. history took place in Las Vegas on Oct 1, 2017.
The massacre at Mandalay Bay Resort and Casino reportedly claimed 59 lives apart from injuring many. The shooter, identified as Stephen Paddock from Nevada, opened fire from the 32nd floor at the audience of the music concert.
Initial reports suggest that the Las Vegas gunman, who is also dead, did not bear allegiance to any terrorist organization and acted alone. However, the indiscriminate shooting, is an act of terror according to laws in the state of Nevada.
Airlines Swing Into Action
Following the gruesome incident, flights to and from Las Vegas’ McCarran International Airport were temporarily halted. However, services have been resumed and the airlines that have exposure to the McCarran International Airport have swung into action.
Allegiant Airlines, owned by Allegiant Travel Company (ALGT - Free Report) , was offering free flights to victims and their families. Shares of the company, which offers flights connecting Minot and Las Vegas, naturally took a hit and declined 1.3% on Oct 3. Currently, Allegiant Travel carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The likes of United Continental Holdings (UAL - Free Report) , American Airlines Group (AAL - Free Report) , Alaska Air Group’s (ALK - Free Report) Virgin America and JetBlue Airways Corporation (JBLU - Free Report) reportedly allowed waivers (with conditions attached) on travel charges for those intending to delay and rebook Las Vegas trips.
What’s in Store for Airlines?
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. In this regard, travel to Las Vegas is likely to be hurt in the next few days, thus impacting tourism as Las Vegas is a favorite tourist spot. As a result, travel-focused stocks, which include airlines, are likely to be on the back foot.
Unfortunately, acts of violence are on the rise and airline stocks were badly hurt previously. The Orlando mass shooting in June 2016 led to airline stocks crashing. Other acts of terror across the globe like 2015 Paris attacks and the 2016 Brussels attacks also spelt doom for airlines.
Against this backdrop, we expect U.S. airline stocks to shed value due to waning travel demand to Las Vegas, at least in the short term. This will result in decline in top line. However, only time will tell the extent to which revenues are actually hurt. Therefore, we expect investor focus to remain on the issue, going forward.
Airlines Already Reeling Under Multiple Headwinds
Whatever the final outcome, the timing of the mass shooting could not have been worse as airline stocks are already struggling due to various other factors. Evidently, back-to-back natural calamities (Harvey and Irma) disrupted airline operations significantly. Rising fuel costs are also hurting airlines. The headwinds are likely to adversely impact the third-quarter results of carriers.
In fact, many U.S. carriers including the likes of American Airlines, United Continental, Spirit Airlines (SAVE - Free Report) and Southwest Airlines (LUV - Free Report) have already trimmed their unit revenue views for the third quarter owing to the headwinds.
Zacks Industry Rank Highlights the Drab Scenario
The Zacks Industry Rank of 233 (out of 250 plus groups) carried by the Zacks Airline industry further highlights the plight of the airlines. This unfavorable rank places the companies in the bottom 9% of the Zacks industries.
We classify our entire 250-plus industries into two groups: the top half (i.e. industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
Over a decade, using a week’s rebalance, the top half beat the bottom half by a factor of more than 2 to 1.
Click here to know more: About Zacks Industry Rank
The dim outlook of the airlines is evident from the fact that the Zacks Airline Industry has underperformed the broader market in the last three months. The industry has declined 4.7% against the S&P 500's gain of 3.7%
With stocks in the airline space already struggling, the Las Vegas shooting incident might hamper the travel plans to one of the most attractive tourist spots, which is a matter of concern for the sector participants.
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