European airline shares drop amidst fears of fatal virus outbreak

British Airways parent IAG SA and rival Air France-KLM Group fell 4.6 percent as evidence mounts that a fatal virus spreading in Europe can be transmitted among people, increasing the potential for disruption to air travel.

Shares of International Consolidated Airlines Group SA dropped as much as 12.80 pence to 263.10 pence in London, the sharpest drop since April 5, when they retreated following concern about a bird-flu virus in China. Air France-KLM fell as much as 35 cents to 7.25 euros in Paris, the most since May 3.

The novel coronavirus infection is spreading, with France reporting a second case, after having occurred mainly in Saudi Arabia following the first outbreak in September. The virus, which has killed more than half the 34 people known to have caught it, appears capable of limited human-to-human transmission, the World Health Organization said yesterday.

“A more developed outbreak could significantly hit short- term travel demand,” Damian Brewer, an analyst at RBC Capital Markets in London, said in a note to investors. “Any sustained dent in travel demand could also diminish cash flows and increase financial stress risk.”

SARS Impact

IAG, which also owns Iberia of Spain, was trading down 4 percent at 265 pence as of 12:05 p.m. local time. Air France-KLM was priced at 7.29 euros for a 4.1 percent decline.

Deutsche Lufthansa AG, Europe’s second-biggest airline, slid as much as 3.5 percent before trading 2.7 percent lower at 15.66 euros in Frankfurt.

Coronaviruses are a family of pathogens that cause illnesses ranging from the common cold to Severe Acute Respiratory Syndrome, or SARS, which sickened more than 8,000 people and killed 774 in 2002 and 2003, according to the WHO.

Keiji Fukuda, the Geneva-based organization’s director- general for health security and the environment, said yesterday in Riyadh, Saudi Arabia, that the occurrence of clusters in multiple countries suggests the virus can be spread among people when there is “close contact.” There isn’t yet any evidence that it can “sustain generalized transmission,” he added.

The SARS outbreaks a decade ago severely curtailed air travel, pushing carriers to significant losses. While the International Air Transport Association estimates the industry will deliver a $10.6 billion profit this year, that’s equal to a net income margin of only 1.6 percent.

With assistance from Simeon Bennett in Geneva.

Editors: Chris Jasper and Benedikt Kammel.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net. To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.