Airline stocks fall as economy worsens; AMR leads the drop due to bankruptcy fears

Victoria
By Victoria October 4, 2011 07:00

Airline stocks fall as economy worsens; AMR leads the drop due to bankruptcy fears

Shares in AMR Corp, parent of American Airlines, closed down 33% yesterday as fears spread the airline was facing bankruptcy. The company has denied rumours it is seeking bankruptcy protection but the poor results posted by the airline and the high debt load it is carrying means it will take more than reassurances to calm investors. Of all the legacy US carriers, American Airlines is the only one not to have filed for Chapter 11 bankruptcy protection in the past ten years and given its high labour costs there are suggestions voluntarily filing would allow the airline to restructure its debt, company and renegotiate labour contracts.

But it wasn’t just AMR experiencing falls; other airlines’ shares prices dropped double digits yesterday as investors determine that a worsening economy will lead to a drop off in air travel, business travel in particular which is the main profit driver for many airlines. Shares in Delta Air Lines, United Continental, US Airways and JetBlue all fell 10% or more, while Southwest fell 7%.

Banking stocks too took a nosedive, which only added to the woes of the airline stocks as concerns were raised how airlines will refinance debt and fund aircraft deliveries. Bank CDS spreads also widened, especially in banks with a large exposure to Greek debt. It doesn’t take much to spook the market these days so any profits warnings or low traffic numbers are likely to have a more detrimental effect on share price over the short-term. And yesterday the International Air Transport Association announced airline passenger numbers fell 1.6% in August compared to July, while freight volumes declined by 3.8% compared with August 2010.

Victoria
By Victoria October 4, 2011 07:00
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