Top 4 ASX airline and travel stocks: the coronavirus impact examined

Bankruptcies, bounces and uncertainty

The carnage continued unabated overnight: the Dow Jones fell close to 3,000 points, while the S&P 500 collapsed 11.98% or 324 points.

Locally, the ASX 200 proved more bullish: rallying 1.56% in the first hour of trade. The banks were up, the miners bounced, but the ASX’s key flight and travel stocks continued to decline.

All up, though equity markets have been the most obviously impacted by the coronavirus (covid-19) crisis – as investors and analysts worry over the hard-to-quantify impact of its spread – it has also began to impact other markets in substantial and often unexpected ways.

For example, when oil demand collapsed off the back of the coronavirus spread, OPEC pushed its members and non-members alike to cut production as a means of stabilising oil prices. Russia said no, Saudi Arabia said they’d flood the markets with oil and brent crude prices crashed as a result.

This supply-demand price shock has raised concerns amongst analysts and commentators that US shale oil companies – which have been feeding on debt for years – will go bankrupt.

A genuine concern indeed, with Moody’s Investors Service noting that ‘Speculative-grade firms hold the majority of the $86 billion of debt coming due in 2020-24, implying a higher default risk for the industry.’

Qantas, Webjet and Sydney Airport share prices in focus

Mind you, it looks as if overindebted gas and oil companies aren’t the only bankruptcy concern right now.

The next prime target? Airlines, according to one consultancy.

The CAPA – Centre for Aviation yesterday sensationally declared that ‘by the end of May, most world airlines will be bankrupt.’

Centrally, CAPA posits that not only are governments failing to react quickly enough to the unfolding situation, but as a direct result of the current coronavirus crisis, ‘many airlines have probably already been driven into technical bankruptcy, or at the very least substantially in breach of debt covenants.’

‘Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying.’

Equity investors seem well aware of these facts – in the last month alone some of the ASX’s top airline and travel stocks have faced substantial selling pressure.

In the last thirty days, for example, the Qantas share price has collapsed 52%, Sydney Airport is down 40%, Flight Centre has fallen 65% and Webjet has come off a staggering 63%.

The selling continued today amongst these stocks: By 10:57 AEDT, the Qantas share price had fallen 4.30%, Flight Centre had dropped 4.84%, Webjet was down 3.47% and Sydney Airport collapsed 5.96%.

For those looking for a reprieve, CAPA warns that:

‘Normality is not yet on the horizon,’

How to trade ASX airline and travel stocks

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For example, to buy (long) or sell (short) Qantas using CFDs, follow these easy steps:

• Create an IG Trading Account or log in to your existing account
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• Click on ‘buy’ or ‘sell’ in the deal ticket
• Confirm the trade

Other bits and pieces

Underscoring the unprecedented nature of the current situation, Qantas today announced a number of additional cuts to its local and international flight program.

Here, the blue-chip airline said that it would be cutting total group international capacity by approximately 90% and total group domestic capacity by approximately 60%, until 'at least the end of May.'

'Previously announced cuts in place from end-May through to mid-September remain in place and are likely to be increase, depending on demand,' the airline also said.

In this situation all stocks in the ‘airline ecosystem’ are bound to be impacted. Less flying, less airport foot-traffic, less holidays, less travel bundles, and so the cycle goes.

Unsurprisingly then, both Webjet and Flight Centre recently pulled their FY20 earnings guidance altogether.

Sydney Airport’s management summed up the whole situation well, recently saying:

'Everyone in the aviation and tourism industry is hurting and we are in discussions with all our partners about the best way to support each other during this period.’

Watch this space.