New York, June 1
Airline stocks rose on Thursday as oil prices fell, which could mean further reductions in jet fuel expenses.
Citing the outlook for cheaper fuel, an analyst for UBS raised his forecast for airline earnings, and a Sterne Agee analyst said the companies could outperform the broader market over the next 12 to 18 months.
Kevin Crissey of UBS said lower fuel prices were "a potential huge tail wind" for airlines while the weak economy doesn’t seem to be causing airlines to cut fares. He cautioned, however, that the economic uncertainty is likely to hurt future travel bookings.
Many investors dumped airline stocks in 2007 and 2008 during the last big run-up in oil prices, and the stocks have recovered only a small portion of the value they lost back then. Sterne Agee analyst Jeffrey Kauffman said airline stocks are now more attractive because consolidation and limited supply of seats have boosted prices and profits.
Kauffman said jet fuel prices have dropped about 40 cents per gallon since April, further brightening the outlook for airlines. Fuel is the biggest single expense at most airlines.
Jet fuel prices closely track oil prices, which fell again Thursday on fresh reports that the U.S. economy is still struggling. The government reported that first-quarter economic growth was 1.9 percent, slower than first estimated, and new claims for unemployment benefits rose last week.
Benchmark U.S. crude fell $1.29 to close at $86.53 per barrel, and European crude dropped $1.60 to end the day at $101.87 per barrel. Those are the lowest prices for oil since October.
The Amex airlines index rose 2.9 percent in afternoon trading.
Among the major U.S. airline stocks, JetBlue Airways Corp. led the way, rising 47 cents, or 9.9 percent, to close at $5.23. UBS’ Crissey upgraded the shares to "Buy," saying they were a bargain and the airline had less exposure than others to weak foreign economies.
United Continental Holdings Inc. shares were up $1, or 4.1 percent, to end at $25.17. Delta Air Lines Inc. gained 35 cents, or 3 percent, to finish at $12.10. Southwest Airlines Co. rose 16 cents to close at $9.03. US Airways Group Inc. picked up 53 cents, or 4.2 percent, to end at $13.22. Alaska Air Group Inc. gained 68 cents, or 2 percent, to finish at $34.30, and Spirit Airlines Inc. fell 2 cents to close at $20.61.