In the midst of the fourth-quarter 2015 earnings season, carriers seem to have a fresh challenge to cope with. The spread of the mosquito-borne Zika virus in more than 20 countries, particularly in South and Central America, has set off alarm bells causing many carriers to offer rescheduling/refunds for tickets purchased for travel to areas where the virus is now wreaking havoc.

Why the Panic?

According to the Centers for Disease Control and Prevention (CDC), mosquito bites (primarily of an infected mosquito of the Aedes species) are responsible for spreading the virus. Mosquitoes of this species have been responsible for spreading other viral diseases like dengue and chikungunya as well. Zika is associated with symptoms like conjunctivitis, rash and fever apart from pain in joints. According to Australian networks report, the mosquito-borne virus was first discovered in 1947 in the Zika forest in Uganda and was found to affect monkeys.

Although hospitalization of patients affected by the virus is rare, the absence of a vaccine for the disease, which can cause potential harm to newborns, has raised concerns. According to various media reports, pregnant women are rather high on the Zika risk list. The CDC has stated that it is highly possible for the mosquito-borne virus to be passed on to the fetus from a pregnant mother. 

Consequently, brain damage in babies cannot be ruled out. Infants affected by the virus can be born with small heads (Microcephaly) and can even have life-long affects. According to various media reports, Microcephaly has been witnessed in several infants in Brazil.

CDC Travel Alert on Zika Fears

With the virus no longer restricted to Brazil and spreading rapidly to other countries like popular tourist destinations in Mexico, Puerto Rico and the Caribbean nations, people are naturally panic-stricken. Alarmed by the rapid escalation of the virus and its potential danger to the unborn and newborn, the CDC issued a travel alert earlier this month on travel to Zika-hit areas.

The advisory has asked travelers (particularly pregnant women) traveling to the affected countries to take “enhanced precautions”. Avoiding mosquito bites by keeping their skin covered with long-sleeved dresses and using mosquito repellants are some of the precautionary measures cited by the CDC. Although travel to the infected areas is not totally prohibited, the alert does advise pregnant women to postpone (if possible) their travel to the Zika-stricken countries. Alarmed by the current outbreak, the World Health Organization has also issued a warning pertaining to the rapid escalation of the virus in the Americas.

Airlines in Action

Alarmed by the current outbreak of the virus, many carriers have taken precautionary traveler-friendly steps. Carriers like American Airlines Group (AAL - Analyst Report), United Continental Holdings (UAL - Analyst Report), Lufthansa (DLAKY - Snapshot Report), Delta Air Lines (DAL - Analyst Report) and JetBlue Airways (JBLU - Analyst Report) are offering fliers (particularly pregnant women) refunds or options to reschedule their travel to Zika-affected areas at a latter date. Apart from carriers, cruise operators like Norwegian Cruise Line Holdings (NCLH - Snapshot Report) are also allowing pregnant women to reschedule their travel to the said areas.

With the carriers already struggling on the top-line front, particularly due to a strong dollar, Paris attacks and woes related to a key revenue metric – passenger revenue per available seat mile (PRASM) – constantly hurting revenues, slackening of travel demand due to the Zika outbreak will only make it worse. No wonder, they are taking precautionary steps to guard themselves against the outbreak.

Moreover, the Zika outbreak deals a further blow to the already-struggling Latin American carriers like GOL Linhas (GOL - Analyst Report), particularly given that the summer Olympics is scheduled to be held in Brazil this year.

Zika-related fears were largely responsible for most carriers shedding value on the bourse on Jan 28. The extent of the fear can be gauged from the fact that JetBlue Airways’ shares declined 6.26% to $19.92 on Jan 28 despite the company reporting higher-than-expected earnings and revenues in the fourth quarter. Moreover, the rebound in oil prices is also not helping airline stocks at the moment.

We believe carriers certainly do not want a repeat of the damage experienced during the spread of the Ebola virus in 2014. This time, they are trying to avoid as much damage as possible in advance by adopting the abovementioned customer-friendly measures. As of now, it is too early to draw any conclusion on the Zika health hazard and its impact on carriers. We advise investors to stay tuned for further updates on this burning issue.