Thursday, July 24, 2014

How Malaysian Airlines' downed jet tanked American airline stocks

The Malaysian crash could make US flyers skittish. Getty Images

The Malaysian Airlines crash is of course, a tragedy that directly affects thousands of friends and family members of the victims.

But it also is having ripple effects in the US economy, and that appears true particularly for stocks of US airlines. The crash helped pull stocks down across the board — the Dow Jones Industrial Average took a hit of nearly 1 percent — but airline stocks fell even further. Major US airlines all saw their stock prices follow the same pattern: an immediate plummet late morning, just after the crash; a bounce back; and an eventual fall leading into the end of the trading day.

Here's American Airlines' 4-percent fall, for example:


Here's Southwest Airlines dropping off by nearly 2 percent:


And here's Delta falling by more than 3 percent.


Why would a crash on one airline send investors running from other airways halfway around the world? One is fears of equipment failure. The Malaysian jet was a Boeing 777, explains Robert Mann, an independent airline analyst. Particularly early on, when it was more uncertain whether it was a crash or whether the plane was shot down, investors may have feared that other airlines using 777s might face similar risks of crash in the future.

But as the theory that the plane was shot down gained more traction, it made for a new potential worry.

"The problem with that, of course, is that it's essentially a headline geopolitical risk, which is not helpful for international travel," he says. That can make international travelers skittish.

"US global carrier networks are now about 40 percent international. Therefore anything that affects international is going to affect network carriers," he adds, referring to the US's major legacy airlines. The irony, he adds, is that those airlines almost never cross into Ukrainian airspace.

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