Falling Airline Stocks: American, United, Delta, Southwest & JetBlue

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AAL: American Airlines logo
AAL
American Airlines

Over the past one month, airline stocks have steadily fallen as concerns related to the spread of Ebola virus have mounted. Major airline stocks including American (NASDAQ:AAL), United (NYSE:UAL) and Delta (NYSE:DAL) have fallen by over 20% since mid-September. Investors and traders are concerned that the fear of contracting this virus on a flight or at a large hub airport could propel people to shelve their travel plans ahead of and during the upcoming holiday season.

However, the Center for Disease Control and Prevention (CDC) has explained that even though Ebola is a deadly virus, which has killed over 4,000 people in its latest outbreak, the chances of contracting this disease on board a U.S. airline are low. [1] U.S. airlines under law can refuse to board a passenger who shows symptoms of an infection (including Ebola disease) which can spread to other passengers. And symptoms of the Ebola disease including fever, headache, muscle pain, and vomiting are quite recognizable. Additionally, unlike flu Ebola does not spread through air. It can be contracted only through physical contact with an infected person’s body fluids. So, the chances of contracting this virus within the enclosed environment of an airplane cabin are low. [1]

Separately, we have so far not seen any impact on airline occupancy rates – percentage of seats occupied by passengers in a flight. U.S. airlines recently released their traffic results for the month of September and occupancy levels at most airlines were normal. We figure if no dramatic event unfolds in the U.S. through December, then people will not likely shelve their travel plans around the holiday season. In such a case, the worst case scenario, which in our view has hammered the airline stocks during the past month, will likely not play out. So, airline stocks could gain some of their lost value in the coming weeks.

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We currently have a stock price estimate of $39.25 for American Airlines Group, around 37% ahead of its current market price. Our current stock price estimates for Delta and United are also ahead of their current market prices by roughly 25% and 10%, respectively.

See our complete analysis of American Airlines Group here

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Notes:
  1. Ebola guidelines for airlines, October 14 2014, www.cdc.gov [] []