WASHINGTON (MarketWatch) — Airline stocks tumbled Monday to lows unseen since the fallout of the 2008 credit crisis on fears the Standard & Poor’s downgrade of U.S. debt heralds another recession.
But analysts dismissed those concerns and noted Treasurys are rallying, which should keep interest rates low in the short term and not impact business spending, particularly when it comes to discretionary travel.
“This is the time when you should be loading up the truck,” said CRT Capital Group Michael Derchin. “There are favored names that are cheap.”
The NYSE Arca Airline Index XX:XAL -4.62% fell more than 3% to 30.86 points, its lowest level since Dec. 2009. Of its 15 components, all but two were in the red.
American Airlines parent AMR Corp. AMR +0.85% , considered by Wall Street to have the greatest risk of bankruptcy if a recession were to occur, saw its shares plunge more than 6% to $3.40 each, a two year-low.
Shares of US Airways LCC -0.94% declined roughly 6% to a 19-month low of $5, Delta Air Lines DAL -0.81% fell more than 4% to a two-year low of $6.41, and JetBlue Airways JBLU -0.24% shed 3% to a $3.97, also a two-year low.
Also down sharply were U.S.-traded shares of Copa Holdings SA CPA -5.75% , Lan Airlines SA LFL -1.23% , Tam SA TAM -0.77% , and Gol Linhas GOL -4.76% .
Investors sold off equities across the board Monday, plunging the benchmark Dow Jones Industrial Average more than 300 points, or 2.8%, to 11,122 points, over fear that the S&P downgrade of U.S. debt heralds a recession.
That could rollback corporate travel spending, particularly for high-yielding premium- and business-class international flying, the airline industry’s bread and butter.
But a drop off in business travel similar to the one after the 2008 credit crisis is highly unlikely, said Forrester Research industry analyst Henry Harteveldt.
“I remain concerned that unemployment is high and that businesses have not been aggressively expanding...but Asia is still doing well, as is Germany, so I’m not expecting to see a meltdown in demand,” he said.
Carriers said they saw some demand softness in June, but that bookings for July and August would be stronger. Earlier, United Continental Holdings UAL -.00% said its July unit revenue was up about 8% from a year ago, verus roughly 4.5% growth in June.
If economic growth does slow, investors may not know its impact for awhile. Most corporate budgets for 2011 are already completed and airlines aren’t likely to have insight into 2012 spending until the fourth quarter, analysts said.
Already, airlines have plans to scale back supply once the busy summer-travel season ends, which should help to keep ticket prices firm. Meanwhile, the price for oil has declined about 13% in the last two weeks, which could help reduce the industry’s fuel costs significantly.
Last week, Southwest Airlines LUV +1.74% announced a $500 million stock repurchase program, which indicate management thinks its shares are oversold, said CRT’s Derchin said.
Source: Market Watch