Air, Cruise and Tourism Stocks Whipsawed in Coronavirus Wake

As investors continue to re-assess value and risk in all corners of financial markets, one of the most obvious and hardest-hit sectors – travel and tourism – continues to reel from the cascading impact of the coronavirus.

Beyond images of trapped cruise-ship passengers, near-empty airplanes and deserted airports and ghosted tourist attractions, companies that fly and cruise people around and cater to vacation experiences are still trying to re-assess their new, stark reality.

Commercial airline giants Southwest  (LUV) – Get Report, United  (UAL) – Get Report and Delta  (DAL) – Get Report have all been hammered in recent weeks, caught in a downdraft of market declines sparked by a sneaky, lethal virus that has people and companies cancelling plans left, right and center.

Online travel companies Booking  (BKNG) – Get Report, which owns Priceline.com, Expedia  (EXPE) – Get Report and TripAdvisor  (TRIP) – Get Report have fallen through the proverbial floor, as have shares of big hotel chains Marriott  (MAR) – Get Report, Wyndham  (WH) – Get Report, Hilton  (HLT) – Get Report and Hyatt  (H) – Get Report – and all of their separate, publicly traded vacation and resort entities too, including Marriott Vacations  (VAC) – Get Report, Hilton Grand Vacations  (HGV) – Get Report and Wyndham Destinations  (WYND) – Get Report. 

Sinking Cruise Industry

Shares of the major cruise line operators were rising in premarket trading Tuesday but Carnival  (CCL) – Get Report, Royal Caribbean  (RCL) – Get Report and Norwegian Cruise Line Holdings  (NCLH) – Get Report fell significantly Monday after the State Department issued a directive saying that “U.S. citizens, particularly travelers with underlying health conditions, should not travel by cruise ship.”

Walt Disney  (DIS) – Get Report, the do-no-wrong entertainment conglomerate that was all the rage last fall when it launched Disney+, has taken a beating as the company and investors continue to assess the impact of tens of thousands of parents opting not to shake Mickey Mouse’s paw in person.

And none of that takes into account the millions of individuals who have canceled their non-vacation, work- and family-related travel plans – by choice, or by force, based on travel restrictions from governments, regions and companies.

After the Sept. 11, 2001, terror attacks, Congress acted swiftly and approved a $15 billion bailout package for the airline industry. The airlines met with President Donald Trump this week, but the president deflected questions about a possible bailout.

Indeed, while the White House wants to find a way to help airlines and hospitality companies, administration officials remain uncertain about the best way forward – in large part because the future of travel and tourism remains shrouded in uncertainty.

‘A 9/11-Like Feel’ for Airlines

Quite the opposite, Trump has directly pushed for the Federal Reserve to take action by making it cheaper for people and businesses to borrow – something it did with gusto just over a week ago when it slashed the benchmark fed funds rate by a half percentage point.

That move may help the markets, but it’s not clear if it will mean anything for consumers.

“9/11 wasn’t an economically driven issue for travel – it was more fear, quite frankly,’’ Southwest CEO Gary Kelly warned this week. “And I think that’s really what’s manifested this time … It has a 9/11-like feel. Hopefully we’ll get this behind us very quickly.’’

So far, that doesn’t appear to be the likely outcome. The International Air Transport Association, or IATA, said it expects the global airline industry to take a hit of up to $113 billion from virus-related travel disruptions.

And for cruise operators, there does not appear to be an end in sight: As of Tuesday, a third Princess Cruises ship, the Caribbean Princess, was placed under a “no sail order” from the U.S. Centers for Disease Control and Prevention as its crew gets tested for Covid-19.

In less than two months, the three U.S.-based operators have lost more than $42 billion in market capitalization, more than half of their value.

Where’s the Stimulus?

From investors’ perspective, sorely missing is the kind of decisive financial action taken by governments and central banks globally following the 2008 financial crisis, where countries coordinated their responses a global economy jarred out of its orbit.

While countries such as China and Japan have already enacted multi-trillion-dollar fiscal stimulus measures to offset the massive, coronavirus-induced hits to their respective economies, the U.S. has so far only signed off on $8.7 billion of aid, mostly geared toward a first response to the virus outbreak.

For travel and tourism operators specifically, it means there is no way to gauge the bottom. And with no assistance in sight from the Trump administration or anywhere else, investors are likely to continue bailing on travel and tourism stocks.

Case in point: a downgrade to neutral from buy for Carnival on Tuesday by Goldman Sachs, which cited deep uncertainty as a result of the coronavirus outbreak.

Initial reads across the travel industry “leave us in uncharted territory, which likely sustains a below-average multiple for the foreseeable future,” analyst Stephen Grambling wrote. Stocks are “embedding a downside scenario comparable to the Great Recession.”

Join Jim Cramer’s special Action Alerts PLUS members-only call to prepare your investment strategy during the economic fallout from the coronavirus and as oil prices fall amid a price war.

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