Must-know: An update on Ebola's impact on the airline industry (Part 7 of 9)
Ebola Impact Index
According to World Bank’s Ebola Impact Index, the U.S. and Germany are estimated to have the least impact among all countries that are affected by Ebola. The Ebola Impact Index was constructed to measure Ebola’s impact based on the size of the potential Ebola outbreak .
The size of the potential outbreak is calculated using the probability of a single case arriving in a given country multiplied by number of additional cases likely to emerge from that case. The Index is also based on the country’s gross domestic product (or GDP). The GDP is the proxy for the quality of the country’s healthcare system.
Risk in U.S.
It could be a good time for investors to invest in U.S. airline stocks. The share prices have fallen drastically because the U.S. is at a comparatively lower risk level. Investors can also invest in airline stocks through exchange-traded funds (or ETFs) like the SPDR S&P Transportation ETF (XTN).
There are two reasons why the U.S. is at a lower risk compared to other countries:
The size of the potential Ebola outbreak was estimated using flight patterns. U.S. airlines operate less flights to Africa. Fewer flights reduces the probability of disease transmission. According to the Wall Street Journal, American Airlines (AAL) doen’t fly to any west African destination. United (UAL) only operates one route from Houston to Lagos, Nigeria. Delta (DAL) operates three routes to west Africa—including Lagos in Nigeria, Dakar in Senegal, and Accra in Ghana. In August, it cancelled the flight from Accra to Monrovia—Liberia’s capital. Southwest (LUV) has limited routes to international locations. It doesn’t have any routes to West Africa.
The assumption was that, countries with higher gross domestic product (or GDP) are less vulnerable when the first case is imported. Countries with higher GDP should have better healthcare systems. As a result, the countries will be able to contain the spread of the disease better.
As a result of the Ebola outbreak, European and African carriers that operate more flights to west Africa have suspended some of their services since August.
In the next part of the series, we’ll discuss how flights and passenger traffic between the three countries with Ebola have reduced to Europe and North America this year.
Browse this series on Market Realist: