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Airlines Jump as Oil Prices Drop

Investors ignored a UAL warning.

Airline stocks rose on Thursday as crude oil prices fell below $30 a barrel, even though the world's largest airline warned that first-quarter fuel costs will be higher than expected.


American Stock Exchange Airline Index

was up 2, or 2%, at 121 in late trading, as March oil futures fell more than 3% to an intraday low of $29.05 a barrel before bouncing back to close at $29.40, down 65 cents on the

New York Mercantile Exchange


The drop in oil prices helped buoy airline shares even after James Goodwin, chairman of



, parent of

United Airlines

, said he expected first-quarter fuel costs to hit $540 million, $40 million above previous estimates.

Shares of UAL were trading up 2 3/8, or 5%, at 54 3/8 by late afternoon Thursday. (The stock was still at 54 3/8 at the close Thursday.)

"This year so far airlines have been going in the opposite direction of oil prices," said Ray Neidl, an analyst at

ING Barings

. "It's an oil-driven market."

Leading airlines have warned that earnings would be hurt by higher oil prices and implemented fuel surcharges to offset those costs.

Oil prices have risen to a nine-year high as supply steadily dwindled, with inventories for the industrialized nations in the

Organization for Economic Cooperation and Development

down 1.7 million barrels a day in the fourth quarter.

But prices retreated Thursday after a Saudi Arabian official said prices would fall as winter fuel demand tapered off. Ali al-Naimi, Saudi Arabia's oil minister, said the optimal price for oil was at $20-$25 a barrel.


Alan Greenspan

, the

Federal Reserve

chairman, warned in testimony Thursday that high oil prices could hurt the American economy.

Airline stocks appear to have also benefited from

Northwest Airlines'


decision to partially do away with a steeply discounted business fare less than a week after announcing it.

Northwest said Wednesday that it had eliminated the BizFlex category except in major hubs after the competition did not match the 40% discount.

The new category offered a 40% discount off regular full coach fares on 10-day advanced purchase without requiring a Saturday night stayover. The lower fare, which was still about 10%-20% more than excursion fares that included a Saturday night stayover, was aimed at luring business travelers, who in many cases spend weekends away in order to take advantage of cheaper flights.

Shares of Northwest, the nation's fourth-largest airline, were up 3/8, or 2%, at 17 9/16 by midafternoon Thursday. (Shares remained at 17 9/16 at the close Thursday.)