Airline shares tumbled the most since the early days of the Covid-19 pandemic, as an emerging virus variant prompted travel restrictions and fears of crimped demand for flights.
The UK has halted arrivals from South Africa and several neighbouring countries for two days and limit access mainly to its own nationals from November 28 onward, with a mandatory 10-day hotel quarantine. The US, Germany and France followed suit with similar measures.
United Airlines Holdings Inc fell 9.6% and American Airlines Group Inc declined 8.8% by the close of trading in New York, the biggest drops for each carrier since June 2020. Delta Air Lines Inc slid 8.3%, the most since September 2020. Hotel chain Marriott International Inc. fell 6.5% and cruise operator Carnival Corp declined 11% as other travel-related stocks took a hit. The US travel policy was revealed after the close of an abbreviated trading day in New York.
The retreat extended losses sustained by European carriers as the Bloomberg EMEA Airlines Index fell the most since March 2020, when global travel collapsed in the early throes of the pandemic.
The border clampdowns signal a new level of risk for tourism-dependent companies whose recovery was already stalled this month by a fourth wave of coronavirus cases in Europe. Lockdowns in Austria and elsewhere in the region have cast a pall over popular ski getaways, while dampening enthusiasm for year-end holiday airline trips, according to Ryanair Chief Executive Officer Michael O’Leary.
“This is the worst early Christmas present that the airline industry could think of,” said Nick Cunningham, an analyst at Agency Partners in London. “To quote Yogi Berra, this is déjà vu all over again.”
The emerging virus strain first identified in South Africa has alarmed health officials across the world, suggesting more countries could shutter borders. Israel and Singapore have also curbed access, while European Commission President Ursula von der Leyen proposed an “emergency brake” on air travel from South Africa, allowing EU member states to act quickly to limit risks.
The World Health Organization said the strain was a “variant of concern.” While it isn’t clear yet whether it’ll overtake the dominant delta strain, the reactions from health officials in a number of countries show a level of concern that could lead to major disruptions, Cunningham said.
“It looks rather like a replay of delta but possibly worse,” he said. “If it plays out like delta, it’s pretty clear what happened then — you get outbreaks, country specific restrictions, and as it spreads across the world, you get large scale travel bans.”
Boeing Co. dropped 5.4% after European rival Airbus SE slid 11% in Paris in a sign that investors are worried the impact could undermine aircraft demand. Commercial aerospace suppliers including jet-engine maker General Electric Co. and Spirit AeroSystems Holdings Inc., which makes fuselage sections for Boeing jets, also tumbled.
Cruise operators Carnival Corp. and TUI AG’s cruise unit were among the biggest losers in the bond market. A 600 million-euro ($677 million) Carnival note due in 2029 fell the most in more than a year, while a TUI Cruises note due in 2026 lost more than 2.3 cents on the euro, according to Bloomberg-compiled prices — the second-biggest decline on the Bank of America Euro High Yield Index as of mid-morning Friday.
Airlines, one of the industries hardest hit by the Covid-19 pandemic, have been slowly building back capacity since June, with a focus on shorter regional flights as countries started to lift border restrictions.
Long-distance travel also got a boost when the U.S. reopened its borders to European visitors and others this month, but that progress was already starting to wane.
Carriers had also started to bring back flights to countries like South Africa, a popular winter sun destination. British Airways was set to restart daily services to Johannesburg by mid-December, while ramping up flights to Cape Town.
“We’re working through plans for our customers and colleagues currently in South Africa and those due to travel from the U.K. in the coming days,” British Airways said in an emailed statement.
Neighboring Botswana, Eswatini, Lesotho, Namibia and Zimbabwe were also placed on the U.K.’s so-called red list and subjected to the temporary travel ban.
The measures mark the biggest change in the U.K.’s Covid travel rules since the traffic light system was overhauled earlier in the autumn to ease border crossings.
Willie Walsh, director general of the International Air Transport Association lobby group, accused governments of “responding to the risks of the new coronavirus variant in emergency mode, causing fear among the traveling public.” He called for a “coordinated, data-driven approach” that avoids border closures and quarantines.
Virgin Atlantic Airways Ltd. had a London-bound flight from Johannesburg in the air when the news of the red-list came through Thursday night, a spokeswoman said. Officials instructed people coming off the overnight flight to self isolate, she said.
A planned relaunch of Virgin Atlantic flights to Cape Town on Dec. 17 may be put on hold, the spokeswoman said. Services to Johannesburg went daily on Nov. 8 and links are likely to be maintained to allow Britons to fly home, albeit under strict quarantine conditions on their arrival.
Between 500 and 700 people daily arrive in the U.K. via South Africa on flights, a number that would normally be expected to increase in the next four to six weeks due to seasonal travel.
An Air France flight from Johannesburg arrived Friday morning in Paris and another is scheduled to leave the French capital in the evening, according to a spokesman. The company is awaiting official notification of the travel ban to adjust its schedules.
The real test for airlines will come after generally slow winter months, according to Davy analyst Stephen Furlong.
“Airlines, in the main, have excess liquidity and will wade out the winter period,” he said. “Key will be booking profile in early 2022 for the summer 2022 season, really Easter onwards.”