Why Are Airline Stocks Crashing Today?

A quick glance at the stock market’s biggest movers on Tuesday reveals that the airline industry is getting absolutely hammered. Major carriers like American Airlines (NASDAQ:AAL) , United Holdings (NYSE:UAL) , and Southwest Airlines (NYSE:LUV) are down more than 4.5%, and regional fliers like Alaska Air (NYSE:ALK) and Spirit Airlines (NASDAQ:SAVE) are also showing big dips.

A lot of the activity surrounding the airline sector can be attributed to this weekend’s shooting in Orlando. Fifty people were killed and 53 more were injured in the deadliest mass shooting in American history at a gay nightclub early Sunday morning, and the shooter allegedly called 911 and pledged his allegiance to the Islamic State prior to the attack.

While the attacker’s motives and possible connections to foreign terrorist organizations are still being investigated, acts of terror do tend to have an impact on consumer behavior. Notably, travel-based stocks can dip on the assumption that people are less likely to travel because of safety concerns.

On top of the Orlando attack, there was a bombing on Sunday afternoon at the Shanghai Pudong International Airport that left five people injured. That case is being attributed to a frustrated migrant worker with gambling debts, but in the wake of the Orlando shooting, it could be contributing to fears as well.

Furthermore, plenty of airline stocks have received analyst downgrades recently. Alaska Air was bounced down to “outperform” from “strong buy” at Raymond Jones, and its price target was cut to $88 from $105.

Raymond Jones also cut its price target for American Airlines. The firm now has a target of $46 for the airliner, down from its previous $48 mark. AAL is down over 20% on the year. Barclays (LON:BARC) and Morgan Stanley (NYSE:MS) recently issued “equal weight” ratings for Southwest.

Bottom Line

Terrorism attacks tend to send airline stocks into a dip based on the assumption that travelers will opt to stay home instead. It’s important to note that this is based on assumptions, and we do not have any data yet that suggests that the Orlando attack has had an effect on travel behavior.

Time will tell, but the investigation and response to the attack may hold the final answer. If no connections to international terror organizations appear clear, perhaps travelers will feel fine going around the world.

Consumer behavior is tricky, and the market can sometimes overreact. With that said, major events do have an effect on people. Right now, the airline sector is volatile on this news and may take some time to calm down.