Europe Wants Unvaccinated Americans to Stay Home. It’s Bad News for Airline Stocks. - BARRONS
AUGUST 31, 2021
Americans who managed a holiday in Europe this summer may have sneaked in under the wire.
New travel restrictions may be coming for unvaccinated Americans as Covid-19 cases surge in the U.S. The European Union on Monday removed the U.S. from its list of countries for which nonessential travel restrictions should be lifted. Israel, Kosovo, Lebanon, Montenegro, and North Macedonia were also removed.
The EU allows its 27 member countries to impose their own restrictions, and entry requirements vary widely. It’s expected that fully vaccinated Americans will still be able to travel to Europe without quarantine requirements.
But this may signal a new wave of clampdowns on travel as Covid cases surge in the U.S. while vaccination rates in the country trail European countries, Canada, and other regions.
It’s a blow for airline investors who were banking on a recovery fueled by high-margin international travel to Europe and other destinations abroad.
The sector slumped 2.7% on Monday. Delta Air Lines (ticker: DAL), American Airlines Group (AAL), and United Airlines Holdings (UAL), each lost at least 3.5%. Domestic-oriented carriers didn’t fare much better with Southwest Airlines (LUV), JetBlue Airways (JBLU), and Spirit Airlines (SAVE), all down 3% or more.
The sector has been in a rut for months, coinciding with another wave of Covid cases and new battles over masking and vaccination requirements in states like Texas and Florida—both now seeing near-record hospitalizations and deaths from Covid.
The pandemic’s resurgence is also igniting worries that the summer travel rebound may recede rapidly this fall, especially if business travel also slows.
Carriers including Alaska Air Group (ALK), American, Delta, and United have all trimmed their fall schedules. Indeed, nearly every major carrier is now planning a slimmer schedule , compared with expectations a few months ago.
“Based on filed schedules, the U.S. is seeing material close-in September and broad October cuts, likely reacting to both weaker demand and strained operations,” wrote Raymond James analyst Savanthi Syth in a recent note.
The sector may be partially reflecting the weaker outlook; it’s down 15% in the past three months and is off 21% from its year-to-date highs in March.
Some analysts view the weakness as a buying opportunity. Seaport Global Securities’ Daniel McKenzie is sticking with his 2022 earnings forecasts, for instance, writing that the recent pressure is likely to be transitory and should reverse later this year.
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He doesn’t expect valuations to improve “until case counts fall and the risk to the economy shifts to the rear view mirror.” But he views Delta, American, and JetBlue as the best bets on the pullback.
Bernstein’s David Vernon also says that investors should stick with the sector. “We continue to see more upside in the large network airlines and reiterate our buy ratings on the group,” he wrote in a recent report.
Some analysts note that travel is recovering in states where the Delta wave may be peaking. Arkansas and Missouri, for instance, have seen gains in airport traffic, based on a seven-day average, since a peak in Delta infections in those states, according to Raymond James.
Still, the sector remains closely correlated to pandemic trends. And if you’re planning a trip to Europe, you’ll almost certainly need a vaccination card. Snap a photo of it too, in case you need to prove you’re inoculated to grab a bite in a café.