We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Airline Stocks Sink on Oil Price Spike Following Iraq Attack
Read MoreHide Full Article
The performance of airline stocks depends to a great extent on crude oil prices. As a matter of fact, airlines have an inverse relationship with oil prices (lower fuel prices bode well for the industry). This is because fuel expenses comprise a major chunk of total airline expenditures.
While market experts forecast a stable outlook for oil prices in 2020, the rising Middle East tensions might turn things awry soon. Following the U.S. drone strike near the Baghdad international airport that killed Iran’s top commander General Qassim Soleimani, oil prices jumped more than 3%. Brent crude is said to have touched $68.6 a barrel on Friday, marking its highest level since the drone attack on Saudi Arabian oil field in September 2019.
This sudden oil price leap coupled with speculations of a further rise in the price of this commodity in case of an Iranian retaliation, pulled down the airline stocks. American Airlines Group (AAL - Free Report) , United Airlines Holdings (UAL - Free Report) , Delta Air Lines (DAL - Free Report) , Alaska Air Group (ALK - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) and Spirit Airlines (SAVE - Free Report) saw their shares sinking 4.9%, 2.1%, 1.7%, 1.8%, 1.7% and 2%, respectively, at the close of business on Jan 3. Consequently, the NYSE Arca Airline Index slid 1.9% at the close of Friday’s trading session.
Meanwhile, American Airlines carries a Zacks Rank #4 (Sell).
Long-Term Impact Unlikely
During September’s drone strikes on crude oil facilities in Saudi Arabia, there was an initial spike in oil prices by over 14%. However, prices quickly stabilized owing to the restoration of crude production capabilities.
Despite Iran’s warning of “severe retaliation”, some market watchers believe that the Iranian retaliation (if at all it occurs) might just have a short-term impact on crude oil prices and thereby on airlines. Based on past events, Tortoise Capital’s portfolio manager Rob Thummel feels that the political turmoil “would likely only be temporary” and hence might not affect oil prices much.
Boeing 737 MAX-Related Woes Linger
Besides the oil price uncertainty, the Boeing 737 MAX-related woes continue with no clarity in sight regarding the aircraft’s return to service. The Boeing 737 MAX jets have been grounded since last March following two fatal air crashes in different parts of the world over a span of only five months, apparently due to software malfunctioning. The grounding of this aircraft resulted in reduced capacity and escalation of non-fuel unit costs, thereby limiting bottom-line growth of carriers with such jets in their fleet.
For instance, Southwest Airlines with the largest (34) exposure to the MAX jets among the U.S. carriers saw its operating income decline by $435 million in the first nine months of 2019. Additionally, American Airlines (with 24 MAX aircraft) expects its capacity to have increased only about 1% in 2019 (over 2018 levels) compared with its previous projection of a rise of 2-3%. This contraction in capacity is primarily due to the grounding of the company’s 737 MAX aircraft. Moreover, the carrier anticipates its full-year pre-tax income to have been hurt by roughly $540 million on account of grounding issues.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Airline Stocks Sink on Oil Price Spike Following Iraq Attack
The performance of airline stocks depends to a great extent on crude oil prices. As a matter of fact, airlines have an inverse relationship with oil prices (lower fuel prices bode well for the industry). This is because fuel expenses comprise a major chunk of total airline expenditures.
While market experts forecast a stable outlook for oil prices in 2020, the rising Middle East tensions might turn things awry soon. Following the U.S. drone strike near the Baghdad international airport that killed Iran’s top commander General Qassim Soleimani, oil prices jumped more than 3%. Brent crude is said to have touched $68.6 a barrel on Friday, marking its highest level since the drone attack on Saudi Arabian oil field in September 2019.
This sudden oil price leap coupled with speculations of a further rise in the price of this commodity in case of an Iranian retaliation, pulled down the airline stocks. American Airlines Group (AAL - Free Report) , United Airlines Holdings (UAL - Free Report) , Delta Air Lines (DAL - Free Report) , Alaska Air Group (ALK - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) and Spirit Airlines (SAVE - Free Report) saw their shares sinking 4.9%, 2.1%, 1.7%, 1.8%, 1.7% and 2%, respectively, at the close of business on Jan 3. Consequently, the NYSE Arca Airline Index slid 1.9% at the close of Friday’s trading session.
While Delta and Spirit carry a Zacks Rank #2 (Buy), United Airlines, Alaska Air Group and JetBlue carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Meanwhile, American Airlines carries a Zacks Rank #4 (Sell).
Long-Term Impact Unlikely
During September’s drone strikes on crude oil facilities in Saudi Arabia, there was an initial spike in oil prices by over 14%. However, prices quickly stabilized owing to the restoration of crude production capabilities.
Despite Iran’s warning of “severe retaliation”, some market watchers believe that the Iranian retaliation (if at all it occurs) might just have a short-term impact on crude oil prices and thereby on airlines. Based on past events, Tortoise Capital’s portfolio manager Rob Thummel feels that the political turmoil “would likely only be temporary” and hence might not affect oil prices much.
Boeing 737 MAX-Related Woes Linger
Besides the oil price uncertainty, the Boeing 737 MAX-related woes continue with no clarity in sight regarding the aircraft’s return to service. The Boeing 737 MAX jets have been grounded since last March following two fatal air crashes in different parts of the world over a span of only five months, apparently due to software malfunctioning. The grounding of this aircraft resulted in reduced capacity and escalation of non-fuel unit costs, thereby limiting bottom-line growth of carriers with such jets in their fleet.
For instance, Southwest Airlines with the largest (34) exposure to the MAX jets among the U.S. carriers saw its operating income decline by $435 million in the first nine months of 2019. Additionally, American Airlines (with 24 MAX aircraft) expects its capacity to have increased only about 1% in 2019 (over 2018 levels) compared with its previous projection of a rise of 2-3%. This contraction in capacity is primarily due to the grounding of the company’s 737 MAX aircraft. Moreover, the carrier anticipates its full-year pre-tax income to have been hurt by roughly $540 million on account of grounding issues.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>