Airline stocks took off Wednesday after oil prices fell sharply.
Airline investors tend to welcome any sign oil prices are moderating, as jet fuel constitutes the industry's second-biggest expense after labor. Recent record-high crude prices were a key factor behind crushing third-quarter losses at many airlines.
The Amex Airline Index was up 3.3%. American Airlines' parent
gained 50 cents, or 5.5%, to $9.53;
was up 48 cents, or 4.3%, to $11.62;
Delta Air Lines
rose 14 cents, or 2.0%, to $7.11; and
was up 49 cents, or 4.8%, at $10.73.
Low-cost carriers enjoyed gains as well, with
up 31 cents, or 2.0%, at $16.04 and
rising $1.44, or 6.0%, to $25.45.
Crude oil fell Wednesday after weekly data showed another gain in U.S. energy inventories. The January futures contract was off $1.63 to $47.50 in Nymex floor trading.
The benchmark U.S. crude is well below its record closing high of $55.17 touched in late October. Nevertheless, prices remain dangerously high for airlines. Oil was trading several dollars below current levels when AMR warned earlier this year that it would spend $1 billion more on fuel this year than last year.
What's more, some analysts' future earnings estimates for airline companies assume fuel prices will moderate significantly from current levels. For example, J.P. Morgan's Jamie Baker has used an average 2005 fuel cost of $40 a barrel to calculate EPS estimates for next year.