Seeking Alpha

Broad decline in airline stocks on margin concerns

  • Airline stocks take another beating after yesterday's warning from Lufthansa on pricing continues to sour the mood on the group and the prospect of higher oil prices crops up with Iraqi in chaos.
  • Regional carriers in the U.S. aren't being spared in the broad sell-off.
  • Decliners: United Continental (UAL) -5.7%, Southwest Airlines (LUV) -4.5%, Delta Air Lines (DAL) -5.1%, JetBlue (JBLU) -3.9%, Alaska Air Group (ALK) -3.4%, American Airlines Group (AAL) -6.4%, Allegiant Travel (ALGT) -3.7%, Hawaiian Holdings (HA) -4.1%.
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Comments (24)
  • BikerX
    , contributor
    Comments (163) | Send Message
     
    Some of these airlines like AAL & DAL are doing incredibly well. I believe that AAL is trading at only 6.5 times 2015 earnings - extremely low. Any pullback would seem like an excellent time to accumulate more shares.
    12 Jun 2014, 12:47 PM Reply Like
  • markcc
    , contributor
    Comments (1576) | Send Message
     
    The European airline market is so different from the US market. With costs driving ticket prices, the industry is moving more to a cost plus model where everyone has to charge about the same for highly competitive routes.

     

    Oil prices are spiking for no real reason today. Is anyone watching that?

     

    Pick up some more on the dip?
    12 Jun 2014, 12:59 PM Reply Like
  • awakeinwa
    , contributor
    Comments (364) | Send Message
     
    oil's spiking due to news out of Iraq apparently
    12 Jun 2014, 01:22 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5821) | Send Message
     
    "Cold War-style spy games return to melting Arctic"
    http://yhoo.it/1xPbqYo

     

    Maybe that's why oil is spiking. You can't ignore Russia's grip on the oil market. Putin is laughing.
    12 Jun 2014, 01:33 PM Reply Like
  • june1234
    , contributor
    Comments (3255) | Send Message
     
    short term, market has not yet discounted Iraq. It will.
    12 Jun 2014, 01:22 PM Reply Like
  • markcc
    , contributor
    Comments (1576) | Send Message
     
    June1234, Oil spiked today. We have become increasingly self-reliant on our own North American oil supplies, so is Iraq even relevant to us today? One stroke of the pen by Obama opens the missing parts of the Keystone pipeline, so I don't see oil going out of control like in 2008.
    12 Jun 2014, 01:32 PM Reply Like
  • june1234
    , contributor
    Comments (3255) | Send Message
     
    I meant short term(did not mean one day although Im including today) the markets have not discounted the news yet if/when some dude who believes he's a descendant of the prophet mohammed and carries a $10M price on his head from the US gov marches on the capitol of energy rich Iraq
    12 Jun 2014, 04:07 PM Reply Like
  • PS1EAI
    , contributor
    Comments (53) | Send Message
     
    Yep, buy on the dip. European economic metrics should not used when dealing with US airlines. The socialists will eventually be driven to understand this.
    12 Jun 2014, 01:25 PM Reply Like
  • PS1EAI
    , contributor
    Comments (53) | Send Message
     
    Yep, buy on the dip. US airlines performance should not be gauged by European Socialistic metrics.
    12 Jun 2014, 01:29 PM Reply Like
  • Dothemathman
    , contributor
    Comments (1218) | Send Message
     
    I suspect that problems that Lufthansa may be having are driven by European economy factors. All of the North American air traffic metrics have been bullish. I hope I am correct that this sweeping move on the North American carriers is just silliness. I am long HA, AAL and UAL.
    12 Jun 2014, 01:52 PM Reply Like
  • markcc
    , contributor
    Comments (1576) | Send Message
     
    dothemathman, there have been no fundamental changes to the industry since yesterday. Operating Margins for the major airlines are generally between 7% and 17%, and a $2 increase in the price of oil converts to about .8% increase in cost against that margin. The fluctuation in a barrel of oil gets converted to higher ticket prices at computer speeds, so the premise behind this article seems faulty.
    12 Jun 2014, 02:17 PM Reply Like
  • abdullah999
    , contributor
    Comments (503) | Send Message
     
    I agree. The Iraq and Lufthansa news both caught the market by surprise, hence the severe initial reaction. Unless there is an economic slowdown or broader conflict in the Middle East, this seems like a buying opportunity IMO.
    12 Jun 2014, 06:02 PM Reply Like
  • markcc
    , contributor
    Comments (1576) | Send Message
     
    abdullah, I agree. The problems with Lufthansa are structural, the market is changing around them in the same way Southwest disrupted the market here and put the old line airlines out of business. It is not something that just happened yesterday and does not have meaningful implications for the US airlines.
    12 Jun 2014, 06:28 PM Reply Like
  • stockpicker99
    , contributor
    Comments (89) | Send Message
     
    I think most airline companies have multi year aviation fuel contract with the supplier. Fuel price fluctuations on a daily basis may not affect the bottom line. Smaller airlines may have issues with the price fluctuation of fuel.Also the mega airlines have newer models which are very fuel efficient. So I think this the manipulation by the traders to create a lower entry level for the stocks.
    12 Jun 2014, 02:05 PM Reply Like
  • User 22930901
    , contributor
    Comment (1) | Send Message
     
    I am optimistic about US airline industry. There is a potential in AAL, DAL and LUV
    12 Jun 2014, 03:20 PM Reply Like
  • starcorral
    , contributor
    Comments (855) | Send Message
     
    I've learned to take AAL and DAL plummeting by 5 figures in my portfolio the same way I took it when the guy who invented rear widow defrosters broke his arm while painting his den.

     

    The question is not what precipitaed this but rather why did so many people panic or self justifying their unwarranted fear by saying "it was time to take profits". Lufthansa is as much an issue as the broken arm. Iraq is an issue - but one of little consequence.

     

    The fact is my four biggest positions dragged my portfolion down, but several pops mitigated that impact. Yep - Ford is down from recent highs. So what. I don't spend much time second guessing myself; evidently I am quite a rare example.

     

    If my attitude serves to help people to consider riding waves rather than standing closer to shore and getting pounded by breakers, then maybe I can prevent a few cases of IBS (I been sellin').
    12 Jun 2014, 03:46 PM Reply Like
  • zorro2828
    , contributor
    Comments (669) | Send Message
     
    If you stare at your feet eventually you will trip! Looking at daily figures causes angst in some and hence they bail into the sell off and momentum plays like a broken record and now, in 2 days AAL is over priced and not going to make any money this quarter... Darn, I wish I had another million or two to invest today as the crackers were selling on silly news about German/ European issues which have little to no affect on the great US carriers like AAL... Bought more today and will continue to add if this freak buying opportunity presents itself again tomorrow.. but shorts, beware... you will get hammered by AAL as I maintain in my investment thesis this stock is GROSSLY undervalued! Let's watch the next few quarters and see who is right on this one! LONG AAL
    12 Jun 2014, 05:25 PM Reply Like
  • Jkillst11
    , contributor
    Comments (13) | Send Message
     
    Not that I'll miss him much but Cantor's loss in the Virginia GOP primary seems to have had an effect on the market at large. Just one more factor contributing to the selling along with the oil price spikes / Iraq situation so well noted in these comments.
    12 Jun 2014, 06:52 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5821) | Send Message
     
    The House knowingly didn't pass anything that the Senate would agree on. Thus, why did they bother passing anything if they knew it would not go through? A deception to make them look like "we did something." Well, I say they didn't do anything. Vote all of the House out. Better yet, vote out some of the Senate too.
    13 Jun 2014, 12:36 AM Reply Like
  • jsIRA
    , contributor
    Comments (2969) | Send Message
     
    Airline industry tried all the means to fight high oil prices. But customers hurt a lot.

     

    They charge the second baggage, better seat, paid food, etc. Ticket prices are also much higher now.

     

    On the other hand, owning airline stocks has been quite rewarding. Buy on dip should work.
    12 Jun 2014, 08:11 PM Reply Like
  • Blake22
    , contributor
    Comments (43) | Send Message
     
    Considering initiating a position in AAL. I almost bought in today with the dip but waited instead to see what happens tomorrow. Looks like the stock is -1% after hours. If the sell off continues like it did today, I will definitely buy some shares.
    12 Jun 2014, 08:18 PM Reply Like
  • jsIRA
    , contributor
    Comments (2969) | Send Message
     
    Airline stocks are all short term oversold and may see rebound tomorrow or in next few days.

     

    But it will take longer time for the stocks resuming their long term up moves. I mean 1-2 months.
    13 Jun 2014, 12:49 AM Reply Like
  • markcc
    , contributor
    Comments (1576) | Send Message
     
    Oil price increases are mitigating this morning, not going crazy, expect airlines to rebound some from yesterdays losses.
    13 Jun 2014, 09:30 AM Reply Like
  • starcorral
    , contributor
    Comments (855) | Send Message
     
    Since I bought DAL, LCC, and AAMRQ with "unrealistic" hopes of 40, I have seen management that is worthy of study and emulation. The industry is becoming much less dependent on oil imports, but the economies of air travel as envisioned while Pullman cars were still being manufactured are becoming even more evident today. The internet has made travel arrangements so easy. Every industry around travel is blossoming. There are fewer reasons to travel by family car, but many reasons why rental vehicles in this era work so well at fly too destinations.

     

    I wish the best for Malaysia Air and Luftthansa, but they are not part of my plan. When stocks take a breather, they are often offering an opportunity.
    15 Jun 2014, 04:22 PM Reply Like
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