<p>Has Southwest Airlines (NYSE: LUV) bottomed out? On two occasions during the week leading up to March 17, the LUV share has bounced off a low value of approximately $ 36 per share. The stock has hit 2020 and is falling almost 30%. However, Southwest is not an outlier. The entire industry suffers when consumers compete to cancel previously booked flights against the background of the coronavirus.
You have to be crazy to buy a corporation right now, right? That may be true, but Warren Buffett once said, “Be greedy when others are afraid.” If you follow that logic, it may now be time to look at what’s next for airlines’ stocks in general, and I would argue for LUV shares in particular.
How does the Southwest handle the crisis?
In response to the crisis, Southwest announced that they would reduce flights by 20% between April and June. “As the effects of the COVID-19 pandemic grow, and based on current booking and cancellation trends, we expect revenue growth for the remainder of March and the second quarter of 2020 to deteriorate further,” the company said in a legislative application Monday.
In addition, the company has also taken a $ 1 billion loan from JPMorgan Chase (NYSE: JPM). The company also cancels share repurchases. With the loan, the company has just over $ 6 billion in unlimited cash to help it cope with the crisis.
The company is also looking at other measures. On the material side, the company offers voluntary leave to certain employees. And then there are symbolic measures such as the company’s decision to restrict passengers to only watering on longer flights.
And then there is the company’s CEO Gary Kelly’s decision to take a 10% pay cut in solidarity with employees. It’s easy to get cynical with such decisions, but I give Kelly credit for the gesture.
Too big to fail?
During the financial crisis, the words “too big to fail” become part of our national discussion. Right now, “without fault” is the motivation that comes out of Washington. A number of industries, including airlines, are losing a bucket full of money to help them survive the economic contraction, which may well lead to a recession driven by the coronavirus.
On March 16, President Donald Trump said his administration was interested in providing financial support to airlines. “We will back the airlines 100%,” Trump said. “We will stop the airlines …”
But what the financial support looks like has not yet been seen. The trade group, which represents the southwest among other airlines, says the industry needs $ 58 billion in government support for financial stability throughout the crisis. To this end, the president says it could be July or August before the virus washes through the country.
What’s next for LUV shares?
On March 16, the National Institute of Allergy and Infectious Diseases announced the first human trial of the coronavirus vaccine. While this does not mean that there will be an actual vaccine available at any time, it is an important first step.
But when travel restrictions have been raised, do consumers continue to fly? Michael Matousek, chief investor for US global investors, believes that even if consumers cancel record flights, they will return to flying. According to Matousek, consumers will continue to holiday and companies will not stop traveling forever. “It’s sold based on people’s fears,” Matousek said.
But when it will remain a big unknown. The LUV share was traded sideways before the sale and I imagine blocking catastrophic news if the virus will continue to trade sideways. So feel free to put LUV shares on your watch list and be ready to buy when the mood in the country changes.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. At the time of writing, Chris Markoch had no position in any of the above securities.