Lower Oil Helping Airlines

by: Robert Zenilman

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

HEARD ON THE STREET: Lower Fuel Costs Lift Airline Hopes, Trump Terror Fear [Wall Street Journal]

Summary: Fuel costs account for 20%-30% of airlines’ operating costs. At American Airlines, each $1 swing in the price of a barrel of oil has an $80 million impact on annual operating costs. So it comes as no surprise that airline stocks have been reacting positively to the recent slide in oil prices. But, not all airlines are benefiting equally: United Airlines locked in third quarter fuel costs at $69.84/barrel, above the current market price for jet fuel of about $60/barrel. Other airlines with such hedges include Northwest, U.S. Airways, JetBlue, Continental and Delta. Contrast that with Southwest, which has 73% of its fuel requirements hedged at $36/barrel for the second half of 2006. In other airline news, Continental, JetBlue, Sothwest, Airtran and U.S. Airways announced that their year over year growth in passenger revenue per available seat mile has not met expectations.
Related links: You Don't Have to be Crazy to Buy AirlinesAirlines Vie for Lucrative New China RouteThe Significance of Oil's Drop Under $60 • Forbes: Lower Fuel Costs Seen Bolstering AMR
Potentially impacted stocks and ETFs: Airtran (AAI), Alaska Air (NYSE:ALK), American (AMR), Continental (NYSE:CAL), JetBlue (NASDAQ:JBLU), US Air (LCC), Southwest (NYSE:LUV). ETFs: iShares Dow Jones Transportation Index (NYSEARCA:IYT), U.S. Oil Fund ETF (NYSEARCA:USO).

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