The details of Thursday’s EgyptAir Flight 804 crash are just beginning to surface, and while no one is 100% certain what happened, reports suggest the downing of the plane is rooted in terrorism. The impact of 9/11 on U.S. airline stocks has grown to become an infamous, but textbook example of how terrorism affects the market — one that can be found in a host of business and economic textbooks today. Setting aside the ethical and emotional aspects of these events, however, there is an opportunity to gain exposure to a sentiment-driven oversell in a number of industries. Here are some companies that sold off in response to what happened on Thursday, and that likely will recover in due course.
Thomas Cook Group, which trades in London but has an over-the-counter American depositary receipt in the United States, kicked off Thursday’s session at just shy of $90 a share. By session close, the company had dipped to just $72 for a 20% drop. The company operates full-suite travel arrangements throughout Europe and North Africa, primarily out of the United Kingdom, and its sales rely heavily on consumer attitudes toward international travel. With the summer season by far its most active and only profitable period, a terrorist air attack in late May can be disastrous for sales. This probably won’t last, however.
The same thing happened when Malaysia Airlines flight 17 was shot down over Ukraine, and before that, during the 9/11 attacks. Sentiment caused a sell-off, but time corrected the oversell and the stock recovered after 30 or so days.
The thesis behind this company’s exposure is very similar to that of Thomas Cook. Ryanair Holdings PLC (NASDAQ: RYAAY) operates a budget airline that services Europe and North Africa’s short-haul flight market. This time last year, Ryanair put out a press release stating its intentions to compete with the bigger names in the space through the expansion of its offerings to Tunisia and Egypt. Between then and now, the Tunisian beach shootings and the more recent Egyptian crashes have pretty much eliminated any such expansion possibility short term, and so markets are struggling to see where Ryanair’s expansion might come from going forward.
Just as with Thomas Cook, however, sentiment toward these regions should ease, assuming there are no more attacks in the near future, and when it does, its initial expansion plans should start to roll out. Along with them, its stock should see some strength.
Boeing Co. (NYSE: BA) lost more than 3% on the day of the attacks, pretty substantial for a company of Boeing’s size, as fears that it may impact cross-Atlantic air travel affected sentiment surrounding the manufacturer. Lower numbers of cross-Atlantic flyers translates to fewer expansion efforts by the bigger airlines, which in turn translates to fewer orders for new aircraft and aircraft parts from Boeing. This one is another instance in which the stock likely will recover once fundamentals override sentiment. Boeing’s recovery is rooted in its order backlog. The company has nearly 6,000 jetliner orders to fill. At an average of somewhere between $150 million and $250 million per craft, these forward-booked revenues should see the company strong for the next half decade — by which time the impact of the recent crash on sentiment will long have dissipated.