Perhaps no industry has been hit harder by the novel coronavirus as the airline industry, which has seen a near 100% shut down over the course of the pandemic. The International Air Transit Association or IATA has estimated that the global airline industry will lose $83 billion this year due to COVID-19 or roughly $230 million per day. Southwest Airlines (NYSE:LUV) is expecting a loss of 70-80% year-over-year of its operating revenues in August alone.
Southwest Airlines is generally thought of as one of the better run airlines in North America due to how profitable a flight can be for the company even if not every seat is sold on the plane. But even for the discount carrier based out of Dallas, Texas, the coronavirus has shredded revenues and flipped the entire industry upside down. The stock is down considerably from its 52-week high of $58.83 per share and belows its 200 day moving average of $36.58. Shares reached rock bottom during the heart of the pandemic, as they touched down as low as $22.47, before recovering somewhat over the past month or so which were the lowest price levels since April of 2014. Since then, the stock price has bounced back by nearly 90% as the economy slowly re-opens and domestic travel, which is Southwest’s specialty, started again.
With the Federal Aid from the CARES Act set to expire in September, airline companies will soon have a decision to make as the novel coronavirus’ impact continues around America. Increases in Texas back in July shutdown Southwest’s business even more and reminded investors that without a vaccine or slowdown in cases, it could be some time until air traffic is back to normal levels. This week Qantas airlines came out and announced that global air travel will not return to previous levels until at least midway through 2021. As a company that deals primarily with domestic flights, Southwest could have an advantage over industry rivals like Delta (NYSE:DEL), American Airlines (NASDAQ:AAL), and United (NASDAQ:UAL) who have a good share of their businesses that are reliant on international travel as well.
It was a shock when famed investor Warren Buffett announced at his Berkshire Hathaway (NYSE:BRK) earnings call that the company has sold off all of their airlines stocks, including Southwest. The stock price has rebounded since then but investor sentiment remains hesitant around airline companies and for good reason. Bargain investors may see the stock price as appealing but there is a very real chance that there will be more pain ahead for airlines before a return to previous profitability. Currently, the dividends have halted and with a second wave of the coronavirus making its way around the globe, we could be in for another quarter of near-zero air travel. There is also a higher than zero chance that air travel may never return to normal again, permanently crippling these companies. Investors should tread carefully with Southwest, although of the major airlines in America, LUV is the most likely company to regain their profitability in the near future.
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