Insights

February 2020 Market Recap

Gold had a wild month in February – skyrocketing toward $1,700 an ounce on fears of the coronavirus spreading, then falling below $1,600 an ounce after global equities took a big hit at the end of the month.  Meanwhile, the airline industry fell even more under pressure, led by the halt of air traffic in major markets and investors fearing flying because of the global health crisis.

Amid the negative news in both sectors, there were many positive developments. Click below to read our recap of the airline sector and gold market for February 2020.

Strengths
  • United Airlines is buying the Westwind School of Aeronautics, a flight training school in Phoenix, to help increase the supply of future pilots. The program is expected to train pilots for United Express regional carriers, which have struggled to fill jobs known for challenging schedules and entry-level pay, reports Bloomberg. The airline is also exploring ways to boost financing programs for aviators’ education. United anticipates 300 students will graduate in 2021.
  • Airbus unveiled a curvaceous aircraft design at the Singapore Airshow that blends the wing and body, a design feature that could cut carbon emissions by 20 percent, reports Reuters. “Blended wing body” aircraft produce less aerodynamic drag and are more efficient to fly. Airbus has been performing test flights at a secret location since last year. Jean-Brice Dumont, executive vice president of engineering at Airbus, told reporters at the show: “We need these disruptive technologies to meet our environmental challenge. It is the next generation of aircraft; we are studying an option.”
  • The Seamless Air Alliance, a nonprofit group of 30 companies including Airbus and Delta, says that its new technology infrastructure will make in-flight connectivity systems modular and hopes to introduce a global standard that will improve in-flight Wi-Fi. Currently, airlines only have the equipment of their chosen internet service provider. A new universal standard of being able to switch between providers would create a smooth experience for customers and save billions in the long run.
Weaknesses
  • The International Air Transport Association (IATA) warned that the airline industry expects its first annual decline in global passenger demand in 11 years due to the impact of thousands of cancelled flights. Passenger demand is forecast to drop by 0.6 percent in 2020, compared with a December estimate of 4.1 percent growth for the year. Bloomberg reports that the global health crisis will shave around $30 billion from revenue. Several airlines have issued concerns of falling revenue, with Asian airlines expecting the biggest hit.
  • On February 5, Pegasus Airlines flight 2193 crashed upon landing at Istanbul’s Sabiha Gokcen Airport. Three people were killed in the accident and the other 180 people on board were injured after the aircraft broke into three pieces. In the midst of bad weather, the plane failed to come to a stop, overshooting the runway and plunging 20 meters down an embankment. The aircraft was a Boeing 737-800, which has a strong safety record, and predates the grounded 737 MAX. Possible causes of the accident include pilot error, poor working conditions of the runway, bad weather and Pegasus’ security protocols.
  • Boeing said that returning the 787 MAX jets to service will take several quarters. Randy Tinseth, Boeing’s vice president of marketing, said in an interview that the company will first ensure the 400 planes with customers and the 300 more stored in factories are flying again before ramping up production, reports Bloomberg.
Opportunities
  • JetBlue founder David Neeleman has a new airline called Breeze Airways that aims to fly routes that aren’t currently served, having already identified 500 potential routes. Neeleman said “we’ll go to larger cities, but from cities that don’t have any service. I don’t think we’re going to fly a single route that anybody is flying on. There’s no reason to fly places that already have competition.”  Breeze will have a similar model to other low-cost carriers and will only fly two models of planes.
  • Boeing said that airlines in Southeast Asia will need 4,500 new aircraft over the next 20 years to meet growing demand from the region’s middle class, reports Bloomberg. The manufacturing giant said that expected new orders are worth $710 billion at the Singapore Airshow. Growth is driven by carriers in Vietnam, Thailand and Indonesia. Boeing announced some positive news in February: it received its first order of 2020. Japan’s ANA Holdings Inc. confirmed that it plans to take 20 more 787 Dreamliner wide-body jets.
  • A new trend is emerging in carriers flying longer distances on smaller planes. Bloomberg reports that China Aircraft Leasing Group Holdings is considering ordering long-range jets from the Airbus A320neo aircraft line. Airbus’ A321XLR is a long-range version of the A320 narrow body that already has 450 orders and commitments, challenging Boeing’s 737 MAX model.
Threats
  • The coronavirus continues to negatively impact the global airline industry. Carriers around the world have cancelled more routes as the virus spreads further and travelers fear flying. Notably, United withdrew its 2020 profit forecast, citing uncertainty from the virus. Lufthansa has frozen hiring. Air Cathway said that 25,000 of its employees have taken unpaid leave – around 75 percent of its workforce. One of the harder hit stocks is Air Canada, which has lost $3 billion in market value from January 13 to February 25. Air Canada was the top performing airline stock in 2019, rising 87 percent on plans to boost its global presence. According to the Bloomberg World Airlines Index, the stock is now the worst so far in 2020, down 28 percent as of February 25.

  • Airbus admitted to illegally trying to sway plane sales to discount carrier AirAsia Bhd and agreed to a $4 billion bribery settlement, reports Bloomberg News. Tony Fernandes, who built AirAsia, was one Airbus’ largest customers and made headlines by announcing big deals. This corruption probe had been going on for four years before settling in February. As a part of the deal, Fernandes will step away as CEO for two months while the Malaysian government investigates.
  • Interjet, operated by ABC Aerolineas SA, is worrying investors after grounding four of its Airbus SE planes. The company says the planes are undergoing major maintenance and some speculate that those planes are actually being used for parts to keep other aircraft in operation, reports Bloomberg. The carrier is under financial stress and said in a court filing that its accumulated losses over the year could be considered a technical bankruptcy.

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The Bloomberg World Airlines Index is a capitalization-weighted index comprised of global airlines.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.