The airline sector is experiencing another widespread selloff, with concerns mounting over the impact of a government shutdown on the industry. Additionally, falling ticket prices are raising concerns about profitability.
U.S. Global Jets ETF JETS Drops 1.2% in Afternoon Trading
The U.S. Global Jets ETF JETS has dropped 1.2% in afternoon trading, marking its fifth consecutive loss and reaching its lowest close since December 28, 2022. The ETF is also at risk of facing its fourth-straight weekly loss, making it the ninth loss out of the past 10 weeks.
Domestic-Focused Air Carriers Hit Hardest
During this recent selloff, air carriers with a more domestic focus have been hit the hardest. Southwest Airlines Co.'s stock (LUV) has sunk 2.8%, reaching its lowest close since May 15, 2020. The stock has experienced a seven-day losing streak, resulting in a 9.9% drop and a decline of 15.9% over the past 19 sessions.
JetBlue Airways Corp. Falls 1.0% on Eighth-Straight Selloff
Shares of JetBlue Airways Corp. (JBLU) have fallen 1.0%, putting them on track for their lowest close since May 22, 2012. This marks the eighth consecutive selloff and could become the longest streak since March 23, 2020.
Other Airline Stocks Experience Decline
In addition to the aforementioned carriers, other airline stocks are also facing declines. Alaska Air Group Inc.'s stock (ALK) slipped 0.8%, reaching its lowest close since October 29, 2020. Similarly, Hawaiian Airlines parent company Hawaiian Holdings Inc.'s shares (HA) dove 3.3% to their lowest close since July 8, 2013.
American Airlines Group Inc., Delta Air Lines Inc., and United Airlines Holdings Inc. Also See Drops
Shares of American Airlines Group Inc. (AAL) lost 1.1%, reaching a five-month low. Delta Air Lines Inc. (DAL) slumped 1.5% to a four-month low, and United Airlines Holdings Inc. (UAL) gave up 0.6%, hitting a five-month low.
The Impact of a Government Shutdown on the Airline Industry
If Congress fails to pass legislation to renew funding by Sept. 30, the airline industry could face numerous challenges, according to Deutsche Bank analyst Michael Linenberg.
Linenberg explains that a government shutdown would result in several non-essential Federal Aviation Administration employees being put on leave, causing delays in airport construction and FAA-certification programs.
While air traffic controllers would continue working as essential employees, their training would be put on hold. This would worsen the already severe understaffing issues faced by the industry.
Falling Prices and Weakened Demand
Another concern for airline investors is the continued decline in prices. BofA Securities analyst Andrew Didora reports that overall system sales remain positive, but prices have fallen by 2.7% in the past week and were down 2.0% the week prior. Both domestic and international flights have been affected.
International leisure sales, which had been performing well, have also decelerated for the seventh consecutive week. Didora attributes this trend to a normalization of demand after a period of strong performance against domestic travel.
Fuel Price Concerns
With fuel prices on the rise, the combination of falling ticket prices and increased costs raises concerns for airlines.
Despite these challenges, it's worth noting that the Jets ETF has only lost 1.1% year to date, while the S&P 500 index has rallied by 11.4%.
In conclusion, a potential government shutdown would have far-reaching effects on the airline industry, impacting staffing, construction projects, certification programs, and exacerbating understaffing issues. Airlines are also grappling with falling prices and weakened demand, particularly in international leisure travel. The rising cost of fuel adds to the industry's concerns.
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