Airlines Squeezed On All Fronts

The airline industry was looking like it was all set for recovery just last week.  Despite the economic softness, three different analysts were talking up the sector.  It turns out that at least for now Warren Buffett’s rule of never buying an airline is the smarter choice as far as the tales of the trading tape are concerned.

Take a look at Delta Air Lines Inc. (NYSE: DAL) with a 10% drop to $10.31 versus a 52-week range of $6.41 to $12.25.  The company posted weaker than expected travel trends in its load factor.  Another issue is that its hedging efforts were thwarted because falling oil prices means that the airline is suddenly locked in on fuel price at above-market prices. The company’s fuel price per gallon was $3.37 for the month of May and its system load factor increased 0.2 points on a 0.9 percent cut in capacity. Its domestic load factor was only 85.4%.

The news is honestly a bit of a head-scratcher. If you fly very often in major markets, the planes are generally packed and the airports sure look full. Maybe passing on all those baggage costs and nickel-and-diming the passengers to death is back-firing.

United Continental Holdings, Inc. (NYSE: UAL) followed Delta shares lower on the thought that woes at Delta are the same at United Continental.  Shares are down 6.5% at $22.77 on the day. Ditto for US Airways Group, Inc. (NYSE: LCC) with a 10% drop to $11.38.

Southwest Airlines Co. (NYSE: LUV) is generally considered the best-run airline that there is, but it also has been an active hedger of fuel prices.  Its shares were down the least compared to the majors with a drop of 2.7% to $8.70.

JetBlue Airways Corporation (NASDAQ: JBLU) is also lower by 2.7% and the positive news of its airport expansion plan at JFK airport in New York from last week is likely supporting the stock.

Even the fairly new shares of Spirit Airlines, Inc. (NASDAQ: SAVE) are getting to share in the pain with a drop of 6% to $17.74 on the sector weakness.

Crude oil was down earlier today, but the latest WTI crude oil was up almost $1.00 per barrel at $84.10 on last look.

JON C. OGG