Tough landing for airline stocks
Today was a terrible day to be an airline. The sector saw sharp decreases across the board as oil prices continued to force markets downward.
Shares of Delta, American and Northwest Airlines dropped more than nine percent. Shares of United Airlines suffered a 12.5% drop. The most lightly impacted carrier was Southwest, whose shares lost about 3% of their value. Perhaps Southwest was granted lenience for being the only major carrier to report a profit for the first quarter.
The Amex Airline Index has lost over half of its value since February and it looks like the trend will continue. Oil prices show no immediate signs of retreat, so airlines must find new ways to combat rising fuel costs. The most obvious potential solution is to increase revenue…
This week, Delta has raised selected fares by $20 and next week American will institute its baggage check fee of $15 for a single piece of luggage. Wonder what they will charge us for next?
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POSTED IN: Commodities, Market, News, Uncategorized
4 opinions for Tough landing for airline stocks
Steve Farrington
Jun 11, 2008 at 7:50 pm
I pulled up the 6 month charts over the XAL and the USO. Looks like a mirror image. For the risk takers who like to trade oil without trading the commodity, going long the beaten up airlines at these low price levels [not that they’re ‘cheap’ yet in terms of valuation in the face of oil] will surely give a high % return.
Looks like UAL is grounding planes as well, so they can try to pack their flights and create perceived demand- and then charge higher rates. Who knows if all the layoffs and grounding inefficient planes will work come earnings season, but it’ll sure be an interesting story to follow.
Tim Turner
Jun 12, 2008 at 7:36 pm
Oh God… I just checked the news; it looks like 116 American Airlines passengers lost consciousness this afternoon in route to Dulles after refusing to pay AA’s new $30 “cabin pressurization fee” that was enacted mid-flight.
But seriously, AMK dropped another dollar today, dipping below five dollars, before rebounding to $5.22 at closing. My dad bought AA stock right after 9/11 for under $20 and I have never stopped hearing him complain about it since. I just looked up AMK stock and was shocked to see that $5.22 is not the lowest it has been ($2.38 in spring 2003). As a small plus, it did recover by the end of 2006, and returned to selling at $40. It doesn’t look good, but let’s hope they make a come back in the coming years.
Sean Sweeney
Jun 15, 2008 at 11:50 pm
The airline industry finds itself in a impossible situation. In nearly every other industry, companies find a way to pass increased costs onto their customers, but with the fierce cost competion amongst the airlines this is tricky. With the cost of oil balloning to unprecedented hieghts, airlines are seeing there losses increase exponetially.
The low fare airlines have brought down prices to unsustainable levels, and even as most of these airlines have started to go out of business, there is really no way to increase prices to the level that is needed for sustainability. The airlines are begining to implement ways to nickel and dime their customers, for example by wieghing each passenger and charging the overwieght extra.
The only real solution that the industry has come up with is consolidation. In the past year there has been a huge increase in mergers; Delta and Northwest, US Air and America West just to name a few. The idea is to decrease competition and increase market share allowing prices to go back up. So far the mergers have made little sense and been very ineffective in increasing profitability. But more consolidation is sure to follow..
patrick king
Jun 22, 2008 at 11:15 pm
Who in their right might would take a long position in an airline? Any airline? Even Southwest is having a hard time weathering this.
Airlines are in perpetual peril. It’s not just fuel prices, it’s the business model and the industry model.
Even with the implicit government backstop(TWA not withstanding), where is the profitability going to come from and when? The government can only prop up companies in the interest of the country’s infrastructure but can’t create earnings.
The end of the uptick rule makes going long even crazier.
What makes the stocks go up? The news was bad but better than terrible? terrible but better than fatal? Expectation dictate the price. Over the long run earnings have to be there for the price to be above zero. Do people really EXPECT earnings?
The only hope is total revolution of the industry model or that they can sustain high prices when fuel prices come back to earth. That will probably create a new Southwest and doom will ensue on everybody else again.
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