Soaring energy prices as a result of the conflict in Iran is taking its toll on the global economy, with everything from fertilizer makers to chipmakers to homebuilders affected by the shock. But for consumer brands such as airlines, cruise lines, and hospitality names, the precarious picture keeps dimming.
On Friday, cruise lines Norwegian Cruise Line Holdings (-6.8%), Carnival Corp (-5.44%), and Royal Caribbean (-4.56%) were among the worst performers in the S&P 500. They were joined by hospitality company Airbnb (-6.35%) and airlines Southwest Airlines (-5.36%) and United Airlines Holdings (-4.75%).
What’s wrong?
First, it was the energy costs. Higher costs are already exacting a toll on travel brands, since fuel costs represent a significant share of their expenses. The result will be higher prices for consumers, which could weaken demand for travel products. That has begun to be felt across the travel marketplace.
Making matters worse, a funding shortfall for the Department of Homeland Security (DHS) has meant that airport security workers have been unpaid for over a month. That’s because the Transportation Security Administration (TSA) sits under the DHS. As a result, many TSA workers have called out, or outright resigned from service.
Some problems can be solved
Despite hope for a swift resolution, America’s conflict in Iran is now a month old. At this point, it’s no longer a case of “nothing ever happens.” Investors’ initial ambivalence towards the Iran conflict is finally being meeting reality.
U.S. equity benchmarks such as the Russell 2000, Nasdaq Composite, and now, Dow Jones Industrial Average have all entered correction territory. That’s defined as a 10% drawdown from all-time highs. And those losses could continue as Brent Crude stays remained above $105/bbl on Friday.
However, despite the self-inflicted blunder the U.S. is nursing in the Middle East, there is hope for a resolution to the more acute problem afflicting airlines. Namely, getting staffers paid.
On Thursday, President Donald Trump signed an executive order intending to get Transportation Security Administration (TSA) agents paid. However, it remains to be seen where that money will come from. Further, the TSA agents’ union is still not expecting paychecks or backpay for at least 7 to 10 more days, per a statement.
But outside executive action, a long-term answer to the ongoing funding with DHS problem falls on Congress. It was thought they might have a solution as Senate Republicans and Democrats united to unanimously pass a bill which would provide funding to the TSA, FEMA, and other branches.
House Republicans ultimately declined to take up the bill, assuring that at least two more weeks could go by before a serious solution can take shape.