Airline stocks drop as fuel costs rise
United and Delta lead the decline as violence in Libya sends oil prices up.
By Ted Reed, TheStreet
Airline shares were falling Tuesday as oil prices surged on unrest in Libya.
By midafternoon, airline shares were all trading down, led by United (UAL), which was down about 8.5% to $24.63, and Delta (DAL), trading at $10.76, down 74 cents or about 6.5%. The Amex Airline Index was down 4.3%. Unhedged US Airways (LLC) was trading at $9.24, down 48 cents or about 5%.
Airlines have been seeking to raise fares, but it can be challenging to keep up when fuel price increases occur suddenly. During the past year, jet fuel prices have risen about 50% to around $2.80 per gallon.
In a report issued late Tuesday, Soleil Securities analyst James Higgins wrote about media reports that Delta could acquire Virgin Atlantic in order to enhance its access to London's Heathrow Airport. "Our rating on DAL remains buy, although it is difficult for us to see how any airline stock can move higher in the uncertain near-term environment for fuel prices the social unrest in the Middle East is creating," Higgins said.
Crude oil is trading at its highest price since September 2008. In London, Brent Crude reached $105.45 a barrel, and in New York oil futures for April rose 5.8%.
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Shares fell 9 percent during the quarter, which offers a compelling entry price now.
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