US Ebola case grounds airline stocks; Dow falls 237 points

The news of the first Ebola case in the US sent airline stocks plummeting Wednesday, dragging the Dow down 237 points. Even domestic airlines with no presence in Ebola-stricken regions saw their stocks fall drastically. 

The first Ebola case in the US was diagnosed by medical professionals in Dallas Tuesday, but experts say the disease still poses little threat domestically. The bigger threat may be to the travel industry.

Shares of major air carriers slipped between 2 and 4 percent Wednesday in the wake of the Centers for Disease Control and Prevention’s (CDC) announcement of the US case. Delta Airlines was down 3.46 percent on the day; United Airlines was down 2.84 percent, and American Airlines, which has a hub in Dallas (where the ebola case was diagnosed), fell 3.07 percent by about 2 p.m., and even chiefly domestic carriers like JetBlue and Southwest suffered losses.

The swoon extended to travel booking companies like Priceline and Expedia, which fell 1.81 percent and 3.24 percent, respectively.

Combined with global economic concerns stemming from the ebola crisis and other issues, like the protests in Hong Kong, the airline industry losses contributed to a gloomy day for the stock market. The Dow fell 237 points.

Overall, the airline industry has had an enviable few years financially. Major mergers and profit-boosting measures, including the restructuring of frequent-flyer programs for many major carriers, have sent shares soaring in 2014. Southwest Airlines shares jumped 85 percent in 2013 and were on pace for a 80 percent gain for the first nine months of this year. American Airlines shares were up 70 percent in the early part of the year before tapering off in recent weeks.

But the travel industry is particularly vulnerable to external forces, illness scares chief among them. Airline travel took a huge dive in 2003 at the height of the SARS scare, Robert Mann, an airline industry analyst and consultant, writes via e-mail. During that time, he says, “capacity [on flights to Asia] was down by as much as 30 percent for more than 8 weeks, only recovering totally after 6 months.”

Worries over bird flu last year and swine flu in 2009 also sent airline stocks tumbling.

“The worse the news headlines get about this, the more risk there is to airlines,” Stifel Financial Corp. analyst Joe Denardi told Bloomberg News.

Still, the fact that airlines with no presence in Africa are also falling has some speculating that today’s dips could be the result of something other than ebola fears. At Time.com, Morningstar analyst Neal Dihora raises the possibility of low oil prices, which he says could make investors think something is amiss with the global economy.

Airlines can allay passenger fears, Mr. Mann says, by “taking guidance from CDC and WHO officials on precautions and their roles,” and "leaving it up to gateway airport and government officials to screen arriving and departing passengers.”

On the other end of the market, the US ebola diagnosis sent shares of drug companies working on treatments for the disease surging Wednesday.