U.S. airlines already struggling with falling demand and fares on overseas flights may see that slump deepen as the swine flu outbreak spreads.
Confirmed U.S. cases rose to 64, a day after the government advised against nonessential Mexico travel and clouding the outlook for carriers such as Delta Air Lines Inc. and American Airlines. Transat A.T. Inc., Canada’s largest tour operator, Tuesday suspended flights to Mexico until at least May 31.
“The airline industry is so fragile because of the thin margins on which they operate anyway, so the loss of a few passengers can really hurt,” said Michael Roach, an aviation consultant based in San Francisco. “It’s certainly something international travel doesn’t need right now, when it was already down.”
Standard & Poor’s said global airlines might face a “SARS effect,” recalling the plunge in business for Asian carriers including Hong Kong’s Cathay Pacific Airways Ltd. after the epidemic of severe acute respiratory syndrome in 2003.
“Though swine flu has not yet caused health problems on a similar scale, we believe airlines are at risk of suffering reduced traffic because of government-imposed quarantines and travelers’ fears,” wrote Philip Baggaley, an S&P debt analyst in New York.
U.S. carriers aren’t specifying how many passengers have altered travel to or from Mexico, the epicenter of the flu outbreak, except to say the total was “not significant,” as US Airways Group Inc. put it.
“The safety and security of employees and passengers is our number one priority,” Chief Executive Officer James May of the Air Transport Association trade group said Tuesday in a statement. “Travelers should and airline employees are taking the situation seriously, but no one should panic.”
Among U.S. carriers, Continental Airlines Inc. has the largest share of its seating capacity on Central American routes, 7 percent, William Greene, a Morgan Stanley analyst in New York, wrote Monday. That includes 500 flights a week to 29 cities in Mexico. Alaska Air Group Inc. has 6 percent, while Delta and US Airways are at about 3 percent.
Outbreak comes after Q1 traffic fell 10% on average
Transat suspended flights from Canada to Mexico through June 1 and from France to Mexico through May 31. Planned flights from Mexico will continue to May 3, and others will be added to bring home customers and employees, Montreal-based Transat said in a statement.
The Bloomberg U.S. Airlines Index fell 3.3 percent after dropping 11 percent Monday, the most in two months. Delta, the biggest U.S. carrier, slid 9.9 percent to $6.08 while American parent AMR Corp. added 5 cents to $4.75.
Of 364,000 flights to and from U.S. airports each week, only 4,000, or about 1.1 percent, involve Mexico, said David Castelveter, a spokesman for the Washington-based ATA.
“For the airlines, it’s small in the scheme of things,” said Michael Derchin, an analyst at FTN Midwest Research Securities BLP in New York. “Assuming this is a confined type of outbreak, I don’t think it’s that big an impact.”
A trade group for global airlines said the timing of the epidemic “could not be worse.”
World airline traffic fell 11 percent in March, a steeper decline than February’s 10 percent, to extend a contraction that began in September, the Geneva-based International Air Transport Association said Tuesday.
The flu outbreak began mushrooming last week just after the largest U.S. airlines finished posting first-quarter results that included traffic declines averaging 10 percent each and combined losses of about $2 billion. Continental said its yield, or the average fare per mile, on trans-Atlantic flights is down about 25 percent from a year earlier.
“Investors and analysts together were starting to have some signs of optimism that maybe we were starting to see the bottoming and after that would come a bit of a pickup,” said Jim Corridore, an S&P equity analyst in New York. “To have anything else happen like this would delay that recovery.”