PRICE OF OIL SENDS AIRLINE STOCKS TUMBLING

Dino D'Amore
By Dino D'Amore February 23, 2011 09:46

PRICE OF OIL SENDS AIRLINE STOCKS TUMBLING

As the Middle East civil unrest continues, European airlines have been hit by a rising oil price and been required to cancelled flights to Libya.

Futures for April delivery in New York rose by nearly 10%, with the spot price for Gulf Coast jet fuel up 6 cents to $2.86 a gallon and the benchmark price for crude was up 5.5% to $94.58 — its highest price in more than two years. Analysts are expecting London-traded Brent to surge as high as $110 a barrel in the next few weeks.

Speaking at the ICBI Aircraft Finance and Commercial Aviation conference in Geneva, Willie Walsh, chief executive of International Consolidated Airlines Group, said rising oil prices means airlines would need to raise fares.

He said: “It’s difficult for the industry to cope with volatility on oil prices. It’s going to impact on ticket prices, no question, if oil prices continue to be at these levels.”

Shares in ICA in London dropped 4% trading yesterday, while Lufthansa stock dipped by 2% in Frankfurt and Air France-KLM Group was down 3.2% in Paris.

In New York, the NYSE Arca Airline index dropped more than 5% with all 13 airlines seeing falls. Shares of United Continental Holdings fell 9%, American parent AMR Corp dropped 7%, and US Airways fell by 6.8%. Delta stock was down 7.2%.

The Air Transport Association estimates that every penny-per-gallon-per-year increase in the price of jet fuel means $170 million to $180 million in additional fuel expenses for the industry.

But even though Credit Suisse lowered its earnings outlook for major European airlines due to the oil price hike, it retained a positive outlook for the rest of the year, and chooses International Airlines Group as its top pick.

Long term, analysts view airlines more positively as they are better insulated from oil shocks following a profitable year.

Dino D'Amore
By Dino D'Amore February 23, 2011 09:46
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