Fuel Prices Lead to Build Up of Shorts in Airlines

by: Data Explorers

Top U.S airline American Airlines Inc (AMR) has warned rising fuel costs would force it to eliminate flights and hundreds of jobs. CEO Gerard Arpey told the FT: "The airline industry was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S. economy."

You will see from this chart that AMR, which owns all of American Airlines' common stock, has seen a recent surge in short interest - from 13% in early April to 18.3% today. Interestingly, it is still fairly easy to borrow AMR, with Utilisation at 48%. There are 15 Days to Cover. The average Utilisation for the rest of the U.S Small Caps is 18%, and for the rest of the North America Transportation it is 13%.

America is not the only place where the rising cost of oil has affected air travel. In the UK, British Airways (OTC:BAIRY) has seen a rise in short interest after the fiasco at Terminal 5, with 10% of its Market Cap on Loan. Although short positions have been covered in easyjet, there was a 400% increase between August 2007 and mid-April 2008 from 2% to 8%. In Hong Kong, Cathay Pacific (OTCPK:CPCAY) has seen a huge amount of short interest (as seen by this graph), with 5% of its Market Cap on Loan (big for an Asian company).

Air China also has 4.5% of its Market Cap on Loan, a rise from 3% in early April.