US airline stocks rise as oil retreats to pre-Iran war levels
Impact of Oil Price Drop on US Airline Stocks
By Nandan Mandayam and Anshuman Tripathy
June 24 (Reuters) - U.S. airline stocks rose 3% to 7% on Wednesday after crude prices fell to their lowest since before the Iran war, raising hopes that pressure on carriers' earnings could ease, though the benefits are unlikely to be passed on to passengers immediately.
Stock Market Performance
The S&P 500 Passenger Airlines index jumped as much as 5% to an all-time high, and is up nearly 13% since its close on June 12, after which the U.S. and Iran announced a peace agreement. The benchmark S&P 500 has dropped 0.5% in that time.
Oil Price Movements
Brent crude futures fell below the $74-a-barrel mark on Wednesday amid signs that more oil tankers are set to move out of the Strait of Hormuz, a conduit for a fifth of the world's oil supplies. [O/R]
Airline Cost Savings and Fares
With crude supplies and prices set to ease, airlines stand to save billions of dollars in additional costs as the run-up in jet fuel prices during the Iran war outpaced fare growth. However, an immediate decline in fares for flyers remains unlikely amid tight capacity.
Analyst Insights and Industry Reactions
"Sudden movements in fuel prices mean that in the near term the airline’s profitability can change (in the opposite direction of the fuel price) because they have already sold many tickets assuming the previous fuel cost," Morningstar analyst Nicolas Owens said.
UBS said in a note on Tuesday that it sees potential for airlines' third-quarter earnings per share to outperform Wall Street expectations, if fuel prices moderate.
Airline-Specific Gains
Also, while all carriers are expected to benefit from cheaper jet fuel, analysts say those with smaller fleets and a lower share of premium seats and customers are likely to gain more, as their margins are more sensitive to fuel-price spikes.
Frontier and Southwest rose 3% each, while Delta and JetBlue rose 3.7% and 4.5%, respectively. Alaska Air and United were up about 6% each, while American Airlines surged about 7%.
Jet Fuel Price Trends
Jet fuel prices, which averaged about $85 to $90 a barrel before U.S.-Israeli strikes on Iran in February, had retreated from a peak of over $170 to an average of $119.17 in the week to June 19, according to the International Air Transport Association.
Broader Economic and Travel Sector Impacts
"The drop in oil prices is part of the story but also the ending of the conflict with Iran means a resumption of industrial ventures that were put on hold and a corresponding increase in profitable business and holiday travel," said Michael Ashley Schulman, partner at Cerity Partners.
Shares of online travel firms such as Booking Holdings and Expedia were up between 7% and 10%.
(Reporting by Nandan Mandayam and Anshuman Tripathy in Bengaluru; Editing by Diti Pujara)