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Airline stocks plunge on warnings of the ‘worst year in the history of aviation,’ as one of Europe’s biggest carriers announces 22,000 layoffs


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Airline stocks plunge on warnings of the ‘worst year in the history of aviation,’ as one of Europe’s biggest carriers announces 22,000 layoffs

Reuters Lufthansa announced on Thursday it would slash 22,000 jobs over COVID-19. The operator also said it expects 100 fewer aircrafts after the pandemic.  Shares in the big four airlines – United Airlines, Delta Airlines, American Airlines and Southwest Airline tanked between 11% and 16%. Stock markets dived down after the Fed chair Jerome Powell’s…

Airline stocks plunge on warnings of the ‘worst year in the history of aviation,’ as one of Europe’s biggest carriers announces 22,000 layoffs

FILE PHOTO: Airplanes of German carrier Lufthansa are parked at the Berlin Schoenefeld airport in Schoenefeld, Germany, May 26, 2020. REUTERS/Fabrizio BenschReuters

Shares in major aviation stocks tanked on Thursday after German airline Lufthansa announced it would slash 22,000 jobs due to COVID-19. 

Lufthansa is bracing for a slow recovery in demand and said the number of aircraft it operates will fall by 100 post-COVID-19. 

Lufthansa’s Frankfurt-traded stock was down 7% at 10.36 euros ($11.77) as of around 3.50 p.m. German time (9.50 a.m. ET).

The negative sentiment poured into a number of aviation stocks, most notably the big 4 US stocks saw sharp declines. 

Shares in United Airlines, Delta Airlines, American Airlines and Southwest Airlines tanked in early trading, losing between 8% and 13%.

As of 9.45 a.m. ET, United was the biggest loser, dropping 13%. Delta and American were close behind, down 11% and 10% respectively, while Southwest lost around 8%.

While Lufthansa’s huge job cuts inevitably impacted sentiment, airline stocks also reeled from a Wednesday statement by the International Air Transport Association that 2020 is likely to go down as “the worst year in the history of aviation.”

On Wednesday, Jamie Baker, an aviation analyst at JPMorgan, said he expected the recent rally in aviation stocks to run out of steam soon. “We do not believe the current pace of equity ascent can be potentially maintained for much longer,” he wrote, according to Marketwatch.

Aviation stocks were not alone in their plunge on Thursday.

Global stocks across the board fell on the day after the US Federal Reserve presented a bleak outlook for jobs in the US and held interest rates at near-zero, and after data showed that another 1.5 million Americans filed for unemployment last week.

In the US, the Dow Jones dropped more than 800 points in early trade.

Read More: A fund manager crushing 98% of his peers over the past half-decade told us 4 themes he’s betting on and 4 he’s betting against – and why the latest market rally still has room to run 

Markets have been unusually bullish in recent days after a better-than-expected jobs report in May.

But Fed Chairman Jerome Powell warned that even though the economy added 2.5 million jobs in May it “could be some years” before millions of jobs return. 

Some of Thursday’s bearish mood in markets can also be attributed to the risks of a second wave of coronavirus hitting the US. 

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The number of new cases in the US has risen 4.1 to% to 20,800 compared to last week. Analysts have voiced concerns that a spike in cases could prolong recovery and lead to fresh lockdowns being imposed. 

Aviation stocks have already taken a massive beating since March when every major economy was placed under lockdown bringing a halt in air travel. 

Read More: Renowned strategist Tom Lee nailed the market’s 40% surge from its worst-ever crash. Here are 17 clobbered stocks he recommends for superior returns as the recovery gains steam.

Prices began to creep up in May over optimism that American drugmaker Moderna made progress towards creating a coronavirus vaccine. More than $5 billion was added to the market capitalizations of the big four US airlines. 

A resurgence of cases could prolong the recovery in airline stocks. 

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