ALWAYS RUNNING WELL AHEAD ON THE BIG STORIES THAT AFFECT INVESTORS IN AVIATION

Right here in November 2012 and in the 2013 forecast in December 2012 we told you that thing to look out for in 2013 was the spread of the novel coronavirus infection. Then in March 2013 upon the news that bird flu was taking hold in the Shanghai area we advised people again to drop airline shares, ETFs etc.
Now this last weekend, the WHO report confirmed that the novel coronavirus infection can indeed spread from human to human, something that the scientific community had stated was the case back in November 2012 (which we looked into). Upon this news both IAG and Air France-KLM shares fell by over 4% in trading this morning with Lufthansa falling 3.5%. For IAG it was the most significant drop since April 5th when bird flu hit the press.
Now what we stated in December 2012 here and what remains the case is that the Middle East is the hub of this novel coronavirus infection and the most recent case in France once again involves a person recently arrived from Saudi Arabia. It is now known that 34 people have contracted the virus with more than half of this number being fatal cases.
The reason why this weekend’s confirmation is so significant is because it confirms that a person infected with the novel coronavirus can indeed pass it on to others on an aircraft and that the confinement of an aircraft would indeed be one of the best methods for the virus to spread. Of course our interest initially last year on this matter was due to the fact that Coronaviruses are a family of pathogens that cause illnesses ranging from the common cold to Severe Acute Respiratory Syndrome, or SARS which affected some 8,000 people and killed 774 in 2002 and 2003.
Any mention of SARS and/or bird flu, more than anything else, can crush airline stocks and indeed can affect non-essential passenger transits. The fact that the Middle East, with its large hubs, large ex-pat population and fragmented health services, is at the centre of this outbreak increases the concern.
If this outbreak continues to gather pace then we have to ask – Can the already weak European airlines and new APAC low costs handle the hit? The answer for a great swath of flag carriers and regionals must be no. The setback for the giants in the middle of cost cutting programs and re-fleeting will be significant. Even the plans of the mighty US airline market may need adjustment.
Let us hope that I am verging on the side of melodramatic but come what may we can all agree on one thing – When it comes to the markets it is the thought of what could be and not what is that rules the day and nothing does it quite like the mention of SARS.