Trump Bans European Air Travel. Airline Stocks Are Getting Crushed.

President Donald Trump banned travel from Europe to the U.S. as part of new actions intended to halt the spread of Covid-19 coronavirus in America.

“The European Union failed to take the same precautions [as America] and restrict travel from China. As a result, a large number of clusters in the United States were seeded by travelers from Europe,” Trump said in his Wednesday evening televised address. “We will be suspending all travel to Europe from U.S. for the next 30 days.” The ban doesn’t apply to flights from the United Kingdom.

Photograph by Daniel Slim/AFP via Getty Images

United Airlines Holdings (ticker: UAL), Delta Air Lines (DAL), and American Airlines Group (AAL) are the three domestic carriers most directly affected by the news. The trio generate about 15% of sales from trans-Atlantic business.

The revenue figures line up, roughly speaking, with capacity. Citigroup analyst Stephen Trent estimates that trans-Atlantic capacity—excluding the U.K.—amount to about 17% of Delta’s second quarter capacity compared with 13% for United and 10% for American. Airline capacity shifts regionally over the course of the year. Travel demand usually picks up in the Spring and Summer seasons.

Crossing the PondProportion of Sales From TransatlanticRoutesSources: Sentieo, Company filings

UnitedDeltaAmerican05101520

United, among the three, generates the most sales as a percentage of sales, followed by Delta and then American. Southwest Airlines (LUV), JetBlue Airways (JBLU), and Alaska Air Group (ALK) generate most of their sales inside of the U.S.

Airlines have been among the hardest-hit sectors by the coronavirus outbreak. Their stocks are down between 33% and 53% year to date, worse than the drops of the Dow Jones Industrial Average and S&P 500 over the same span.

The sector was pummeled again Thursday. United stock dropped about 25%, Delta shares fell 21%. American shares fell 17%. Southwest, JetBlue, and Alaska Air dropped 18%, on average.

The closest demand shock for U.S. airlines—similar to the magnitude of Covid-19—might be the terrorist attacks of 9/11. Total U.S. airline revenue fell about $13 billion, or about 14%, in 2001 in the aftermath of the attacks. The industry swung from a 2000 full-year profit of about $2.4 billion to a loss of about $7.7 billion the next year.

The U.S. airline industry is about twice as large as it was in 2001, as measured by sales. It’s also about four times as profitable. A similar reduction in sales and earnings could wipe about $20 billion in sales. Losses are likely too, but they shouldn’t be as large as 2001.

This is only rough math.

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