Why The Airlines May Still Not Be A Buy…Even After The War Ends
Once the situation in
Iraq is resolved, one of the industries that is expected to see a
pickup in business activity is the airline industry, due to lower fuel prices
and increased demand for travel. As a result, investors have been quick to buy
up airline stocks on any positive news about the war–Continental shot
up 25% on March 21 when the market thought Iraq would be a cakewalk. However,
there is a new variable that could continue to weigh on this industry, despite
better geopolitical news…
Air travel has helped spread the disease known as
Severe Acute Respiratory Syndrome (SARS), which has no known cure and is highly
contagious, to 19 countries. The illness has infected 1600 people (58 in the
US), killing 59 people around the world so far: 34 in China, 13 in Hong Kong, 4
in Vietnam and 4 in Canada, and more and more
cases are popping up every day around the world.
The continued uncontrolled
spread of this disease could lead to some more downside for airline industry, as
more air travelers would avoid the busy Asian routes out of fear; or in the
worst-case scenario, the US, China, Japan, and the European Union could impose
flight bans from infected areas, as the World Health Organization regards any
city with an international airport as being at risk. So, if things start to
look good on the Iraq front, make sure the SARS situation is under control
before rushing to buy the airlines.