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Airline Industry Appreciates 17.7% in a Month: Here's Why
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It is a well-documented fact that expenses on fuel represent a significant input cost for airlines. Therefore, the health of stocks in the Zacks Airline industry is inversely proportional to the movement of oil prices.
Oil prices were moving northward from July mainly due to the extension of production cuts by Saudi Arabia and Russia through the end of the current year. In fact, oil price surged 28.5% in the July-September period, in turn restricting bottom-line growth of many airline players in the third quarter of 2023.
Due to the northward movement of oil prices, average fuel price per gallon increased 10.3% sequentially at Delta Air Lines (DAL - Free Report) . Similarly, the metric increased 11%, 10.3% and 11.8% sequentially at American Airlines (AAL - Free Report) , United Airlines (UAL - Free Report) and JetBlue Airways (JBLU - Free Report) , respectively, in third-quarter 2023. Of the abovementioned stocks, JetBlue currently carries a Zacks Rank #5 (Strong Sell), while the other three carry a Zacks Rank #3 (Hold), presently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, oil prices have stopped moving northward over the past month and have in fact declined 8.5% in November so far. Factors like an increase in supply, record U.S. oil production and dispute among the OPEC+ group of exporters regarding agreement on any additional production cuts have contributed to the reduction in oil prices.
This southward movement in oil prices is a welcome development for airline stocks. This is reflected in the fact that the Zacks Airline industry has appreciated 17.7% in a month’s time, well above the S&P 500’s 9.4% rise in the same time period.
Image Source: Zacks Investment Research
Record Thanksgiving Traffic: Another Positive
Coupled with the southward oil price movement, the buoyant passenger volumes witnessed during the ongoing Thanksgiving travel period are another positive for airlines that have led to the price surge.
A mind-boggling 30 million passengers are expected to be screened between Nov 17 and Nov 28, a record high, per the Transportation Security Administration. The decline in airfares supports the upbeat traffic projection.
Delta expects 6.2-6.4 million passengers to avail its flights in the Nov 17-28 timeframe. The forecast implies that 515,000-530,000 passengers are likely to fly per day. UAL expects to have recorded its busiest-ever Thanksgiving, with nearly 6 million people flying with the airline during the holiday travel period. American Airlines, too, has been attracting huge traffic during the ongoing Thanksgiving holiday season.
The record traffic during the Thanksgiving period, in addition to the decline in fuel costs, has provided the much-needed boost to airline stocks after a tough few months due to headwinds like high labor and fuel costs and a slowdown in domestic air travel demand.
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Airline Industry Appreciates 17.7% in a Month: Here's Why
It is a well-documented fact that expenses on fuel represent a significant input cost for airlines. Therefore, the health of stocks in the Zacks Airline industry is inversely proportional to the movement of oil prices.
Oil prices were moving northward from July mainly due to the extension of production cuts by Saudi Arabia and Russia through the end of the current year. In fact, oil price surged 28.5% in the July-September period, in turn restricting bottom-line growth of many airline players in the third quarter of 2023.
Due to the northward movement of oil prices, average fuel price per gallon increased 10.3% sequentially at Delta Air Lines (DAL - Free Report) . Similarly, the metric increased 11%, 10.3% and 11.8% sequentially at American Airlines (AAL - Free Report) , United Airlines (UAL - Free Report) and JetBlue Airways (JBLU - Free Report) , respectively, in third-quarter 2023. Of the abovementioned stocks, JetBlue currently carries a Zacks Rank #5 (Strong Sell), while the other three carry a Zacks Rank #3 (Hold), presently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, oil prices have stopped moving northward over the past month and have in fact declined 8.5% in November so far. Factors like an increase in supply, record U.S. oil production and dispute among the OPEC+ group of exporters regarding agreement on any additional production cuts have contributed to the reduction in oil prices.
This southward movement in oil prices is a welcome development for airline stocks. This is reflected in the fact that the Zacks Airline industry has appreciated 17.7% in a month’s time, well above the S&P 500’s 9.4% rise in the same time period.
Image Source: Zacks Investment Research
Record Thanksgiving Traffic: Another Positive
Coupled with the southward oil price movement, the buoyant passenger volumes witnessed during the ongoing Thanksgiving travel period are another positive for airlines that have led to the price surge.
A mind-boggling 30 million passengers are expected to be screened between Nov 17 and Nov 28, a record high, per the Transportation Security Administration. The decline in airfares supports the upbeat traffic projection.
Delta expects 6.2-6.4 million passengers to avail its flights in the Nov 17-28 timeframe. The forecast implies that 515,000-530,000 passengers are likely to fly per day. UAL expects to have recorded its busiest-ever Thanksgiving, with nearly 6 million people flying with the airline during the holiday travel period. American Airlines, too, has been attracting huge traffic during the ongoing Thanksgiving holiday season.
The record traffic during the Thanksgiving period, in addition to the decline in fuel costs, has provided the much-needed boost to airline stocks after a tough few months due to headwinds like high labor and fuel costs and a slowdown in domestic air travel demand.