Airline stocks fall as fears mount over coronavirus outbreak in China
Shares of U.S. airlines that fly to China fell on Tuesday as fear grew about a virus that authorities say has killed six people and sickened 300 more.
The U.S. reported its first case, a Washington state resident who returned last week from China and was hospitalized in good condition. Investors worried that the virus could spread beyond Asia, like the SARS outbreak in 2002 that hurt travel between the U.S. and Asia.
Shares of Hawaiian Airlines' parent closed down 5.5%, United Airlines dropped 4.4%, American Airlines lost 4.2%, and Delta declined 2.7%. Other stocks in the travel sector also took a hit Tuesday, including hotel chains such as Marriott, which fell 1.9%, and Hilton, down 2.9%.
Gareth Leather, a senior economist at Capital Economics, told investors in a research note that the outbreaks represents a "major downside risk" for financial markets.
"If the virus does spread, the worst affected countries are likely to be those most dependent on Chinese tourist spending," he said. "In addition to China itself, Hong Kong stands as the most exposed. Thailand and Vietnam are also vulnerable."
The outbreak is believed to have started in Wuhan in central China. None of the U.S. airlines fly to Wuhan, but their Chinese partner carriers do, and some passengers transfer from Chinese flights to American ones.
"We're obviously watching it carefully — it's still way too early to talk about," Marriott CEO Arne Sorenson told CNBC Tuesday. "I think the Chinese authorities have got to make sure they understand what's going on and we'll have to watch and see what we learn from it."
Fear about the virus increased just as millions of Chinese prepared to travel for the lunar New Year holiday, which starts Saturday. Cases have also been confirmed in Japan, South Korea and Thailand.
Last week, U.S. health officials began screening passengers from Wuhan at New York's Kennedy airport, Los Angeles International and the San Francisco airport. Officials say they will expand the screening to Chicago's O'Hare and Atlanta's Hartsfield–Jackson airports, and require all U.S.-bound travelers who begin their trips in Wuhan to go to one of those five airports.
"There is a legitimate threat to travel," said Henry Harteveldt, a travel industry analyst in San Francisco. "It's small now, but with the potential to become much larger with just some innocuous event such as an undetected passenger getting through [health] screening at an arrival airport like San Francisco International, Kennedy or LAX."
Harteveldt said the situation also could become worse for airlines if corporate customers start to restrict travel to China.
In 2002 and 2003, while U.S. airlines were still reeling from the 9/11 terror attacks, the SARS outbreak hurt their international business. Harteveldt recalled a trip he made back then to Tokyo.
"Health workers in hazmat suits came on board and took people's temperatures before they could disembark," he said. "It was quite frightening."
Chinese authorities confirmed that the virus can spread from one person to another, not just from animals to humans. So far, however, the virus appears to be less dangerous and infectious than SARS, which also started in China and killed more than 700 people.
Capital Economics also noted that the numerous other epidemics and other disease outbreaks have had little impact on global financial markets, even during incidents that killed more people than SARS.
"[E]ven the outbreaks of diseases like avian flu, swine flu, MERS and Zika, which spread widely around the world, failed to generate the same kind of panic, perhaps in part because the initial secrecy that surrounded the SARS outbreak was avoided," Oliver Jones of Capital Economics said in a note.