Airline Shares Fall as Oil Prices Rise

Airlines stocks fell on Tuesday as fuel prices rose, suggesting that investors may be nervous that recent fare increases may not be enough.

» Aviation - W | Wednesday, February 22, 2012 • Air News Times

Shares of some of the big airlines fell 10 percent or more, although they recovered slightly on Tuesday afternoon.

Jet fuel is the single biggest expense for most airlines. As of last week it had risen 12 percent over the past year, according to the U.S. Energy Information Administration. Oil prices rose further on Tuesday, up $2.65 to $106.25 per barrel in New York. That's its highest price since May 4.

Over the past couple of years, airlines have been quick to raise fares to pay for that more expensive fuel, even if those higher fares force some potential travelers to stay home. Most of the big airlines are flying the same amount this year, or shrinking slightly. American Airlines is pruning more aggressively as it reorganizes under bankruptcy protection.

"The stocks are just going to move with oil, it's as simple as that," said Helane Becker, an airline analyst with Dahlman Rose & Co. "No matter what the airlines do to tell people it's changed and they manage their business differently. They've proven the model, right? They've proven that they'll take capacity out, and they'll raise ticket prices, and they made money last year. It doesn't matter. The stock's still soft."

US Airways Group Inc. fell $1.01 to close at $7.89. The 11.4 percent price decline was the biggest in percentage terms among airlines. Unlike its larger competitors such as United and Delta, US Airways doesn't hedge its fuel purchases. Hedges are financial bets on something similar to jet fuel, such as heating oil. That way, if oil prices rise, the airline makes money on the hedge, offsetting some of what it's losing on higher fuel prices.

United Continental Holdings Inc. fell $2.13, or 9.1 percent, to close at $21.24. Delta Air Lines Inc. fell 78 cents, or 7.2 percent, to close at $10.05.

Last week Alaska Airlines last week said it now expects to pay $3.38 per gallon for jet fuel in the first quarter, up from its previous estimate of $3.31. Alaska parent Alaska Air Group Inc. fell $3.91, or 5.1 percent, to close at $72.47.

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