Insights

November 2020 Market Recap

The price of gold fell below $1,800 an ounce briefly and the largest gold-backed ETF had its biggest monthly outflow in three years. On the other hand, airlines surged on positive news of a virus vaccine.

Click the buttons below to read our recap of the airline sector and gold market for November 2020.

Strengths

  • Airlines surged on November 9 after Pfizer and BioNTech announced its vaccine candidate against the coronavirus was 90% effective in its phase 3 study. Hawaiian Holdings ended the day up a massive 50.83%. Carriers have recovered as positive vaccine news spurs hopes of a travel demand recovery.
  • The International Air Transport Association (IATA) is working on a mobile app that will help flyers show their COVID-19-free status. These so-called COVID “passports” could be one way to speed up the travel recovery. A test program will begin with British Airways by the end of this year before arriving to Apple in the first quarter and on Android devices by April.
  • S. regulators ruled that the Boeing 737 MAX can return to the skies with an extensive package of fixes, after the 20-month grounding following two deadly crashes. There are 72 of the planes in the U.S., another 315 in the rest of the world and around 450 built jets Boeing has been unable to deliver, amounting to billions of dollars in inventory that can now be sold. The manufacturer is still suffering from the impact of the pandemic as carriers globally have cancelled and deferred orders for new aircraft.

Will Boeing recover from 737 MAX grounding and pandemic

Weaknesses

  • IATA estimates global carriers will lose a combined $157 billion in 2020 and 2021 – five times the amount racked up during the 2008-2009 recession. Bloomberg notes this forecast is 60% higher than that in June. IATA calls the crisis “devastating and unrelenting.” The biggest threat for airlines is they will run out of cash before a vaccine is distributed and people begin to fly again.
  • Data from OAG Aviation Worldwide shows that a third of the world’s air travel routes have been lost due to the pandemic. In January there were 47,756 operational routes around the world and by November there were just 33,416 routes. As nations closed borders and restricted outside travel, the number of international routes dropped far more drastically than domestic.
  • Despite warnings by the CDC to refrain from Thanksgiving travel, a post-pandemic record for U.S. passengers was hit on November 22, with 1,047,934 people passing through airport security. Although negative that travelers are bucking the CDC warning, it does give hope to the air travel recovery.

Opportunities

  • A surprising side effect of the pandemic has been progress toward digitizing aspects of flying. The push to reducing human touchpoints is reducing cabin weight and boosting cost-savings. British Airways has removed the in-flight magazine and is now available as a free download, saving a significant amount of weight. Bloomberg notes fuel is a major expense for carriers and just small changes can result in big savings. In 2018, United saved $290,000 in annual fuel costs by using a lighter weight of paper for its magazine.
  • Although international air travel remains weak, domestic travel is recovering as certain countries ease restrictions with the pandemic under control. All 10 of the world’s busiest domestic routes so far in November are in Asia. The busiest route is between South Korea’s capital Seoul and the island Jeju – with 1.3 million seats scheduled for the month.
  • Both an opportunity and a threat: Qantas Airways’ CEO Alan Joyce said the carrier plans to require future international passengers to have a COVID vaccination prior to flying. Joyce added that “it’s going to be a common theme across the board” to require all travelers to take a vaccine. This is an opportunity to restore confidence in flying and a threat that travel won’t recover until a vaccination is widely distribution. Vaccines are still in final trial stages and might not be distributed until the first quarter.

Threats

  • According to research from IBA Group, 42 airlines globally have entered bankruptcy so far this year. Norwegian Air Shuttle filed for insolvency last week. The group predicts the total will push through 70 by March next year. IBA’s Stuart Hatcher said in an interview: “Airlines will be trying everything to get through to Easter, when higher demand should coincide with the roll-out of the vaccine, but there comes a point when the money runs out.”

Airlines Struggle to outlast wait for vaccine

  • Although Boeing’s 737 MAX aircraft is cleared to fly again, it still faces the challenge of passenger fear after two deadly crashes. Some carriers are even giving passengers the option of changing flights if they are scheduled to fly on the aircraft. Another challenge is the timeline of the jets return. United said it will take 1,000 hours of work on each aircraft to prepare it for flights after a long time in storage and the extensive changes required. American is the first carrier to add the jet to its schedule, while Southwest, the largest buyer, said it won’t use the plane until the second quarter of 2021. The aircraft is also awaiting approval internationally.
  • The European Union said it will place a 15% tariff on U.S. jets, along with other goods, creating a big problem for Ryanair. The carrier has more than 135 Boeing Max 200 jets on order and plans to take delivery of as many as 30 in 2021. Bloomberg reports that Boeing has over 300 pending orders from within the EU that could face cancellation due to the new tax. During the major cash burn during the pandemic, most airlines are not in a place to suddenly pay 15% more for their aircraft.