Transportation
What Does the Oil Recovery Mean for Airline Stocks?
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The global airline industry has enjoyed an across the board windfall over the past 12 months, as both the price of crude and jet fuel have collapsed. In the past six weeks, however, both have recovered, with West Texas Intermediate (WTI) crude up close to 50% on its February lows and jet fuel (Platt’s) not far behind.
With the windfall, and concurrent to falling fuel prices, common sense suggests airlines should benefit from a boost in market capitalization. Conversely, that the late February-early March recovery should put pressure on airline share prices.
A look at the charts of some of the major U.S. airlines, however, reveals a different picture. Alaska Air Group Inc. (NYSE: ALK), Delta Air Lines Inc. (NYSE: DAL) and American Airlines Group Inc. (NASDAQ: AAL) all declined throughout the 2015 to 2016 crossover, before bottoming out on February 8, 2016 (true for all three) — just days before WTI followed suit and also bottomed out around the $25 mark. As oil has recovered, so have all three of these stocks.
This seems counterintuitive, but its reasoning is pretty simple. When airlines save money so publicly, travelers expect to benefit from the savings. These expectations can quickly lead to price wars and, as we’ve seen numerous times in the past, price wars will negatively affect airlines.
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