Airlines shares take a pounding

AIRLINES hit severe turbulence after President Donald Trump issued a confusing ban on travel to the US from mainland Europe in the latest sign coronavirus may be spinning out of control. All shares were battered in the travel sector, a category that now includes WH Smith, which had earned plaudits for moving away from the High Street to focus on airports and rail stations. BA owner IAG, one of the biggest transatlantic fliers, lost 10%.

Easyjet and Ryanair fell 7% and 6% as investors predicted they would be hit by a decline in transfer traffic to international hubs. The combined drop in market value of easyJet, Ryanair, IAG, Wizz Air, Norwegian, Air France and Lufthansa was about £3 billion. Brave flyers boasted on Twitter of picking up super-cheap tickets, but airline investors were considerably less bold on the shares.

All the big US airlines such as United and Delta were down at least 6%. Following yesterday’s plunge in US stocks, Asian markets failed to reverse sentiment. The FTSE 100 fell 307 points, or 5%, to 5569. The wider, more UK-focused FTSE 250 lost 6% to 16,224. With the travel ban raising expectations that the US will enter recession following the travel ban, oil prices took another knock. Brent Crude was down nearly 5% to $34 a barrel.

Gabriel Sterne of Oxford Economics notes that if oil fell to $30, 40% of advanced economies would have deflation, though probably not Britain. Further falls in US shares were expected later, with some seeing this as a long-overdue correction.

The Dow is forecast to fall another 1000 points today. Bus and train operators were not immune from the travel ban panic. Go-Ahead cut earnings forecasts saying the flu virus was putting customers off tourist trips. “Whatever you think of the Trump administration’s preparations for a pandemic, one set of people who were not ready for such an event were those investors who piled into US equities in 2019 after the Fed starting cutting interest rates,” says Russ Mould, AJ Bell investment director.

“This is not because they should have seen the viral outbreak coming but because they bid US equities up to valuation levels which left little or no room for earnings disappointment of any kind, whatever the reason. “As a result, the S&P 500 has already lost $5.3 trillion of value and counting.” With shares now seemingly cheap, City analysts say it would be a good time for large companies with cash to start buying back their own stock.

Instead, most predicted, they will hold on to that cash in fear of how bad the economic slowdown and potential consumer lockdown could become.

Salman Haqqi, personal finance expert at money.co.uk, said: “Today’s ban on flights from Europe to America means any UK residents who have a flight booked via a European destination should get a refund directly from their airline. Passengers may be able to get a refund from their hotel, but it’ll likely depend on the policies of the particular accommodation provider."