Earlier today I wrote that coronavirus fears are leading to a major fall off even in domestic travel already. That seems like an overreaction to me. There are only 62 reported cases of COVID-19 in the U.S. so far, half of which are off of the Diamond Princess cruise ship.
This likely understates the number of actual coronavirus cases by a significant degree. Most people who have it now are likely asymptomatic and not getting tested. The testing itself takes time. And there are reports of U.S. regulators standing in the way of widespread testing.
Nonetheless, since this morning we’ve learned that Amazon is telling employees to defer non-essential domestic business travel. It doesn’t seem like this keeps employees safer at the moment. Nonetheless other major employers oncluding Google have already curtailed their international travel. This is likely to spread to other companies.
After mentioning this on Twitter it seems like it already may have. I’ve seen replies that their companies are doing the same and pulling out of trade shows. The value of going to trade shows drops (they are a perfect example of network effects) and the reduction in travel spreads, along with a further reduction in economy activity. A 12% selloff in the markets over the last week may not be wrong.
United is off 23% in a week. Delta is off 21%. American is off 37%. United Airlines is postponing next week’s investor day, saying it isn’t “practical to expect that it can have a productive conversation focused on its long-term strategy next week.”
In other words, judging by business and investor reaction to the continuing news about coronavirus, the best expectation is likely what Patrick Swayze tells the owner of the Double Deuce bar he’s trying to clean up in the movie “Road House”:
I have to imagine American’s shares were pummeled most among the large U.S. airlines because of their outsized debt, which becomes a bigger relative burden when revenue dries up. They have to be hoping for a Fed rate cut bigger than the 50 basis points many are already expecting in March.