Delta Soars on Labor Pact Hopes

The company and its pilots appear to be making progress on a package of contract concessions.
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Updated from 12:17 p.m.

Delta Air Lines

(DAL) - Get Report

shares soared almost 20% Wednesday, leading a mixed performance in airline stocks.

Like other airline stocks, Delta appeared to receive a lift Wednesday from an early decline in oil prices, which was later erased.

But Delta also appeared to benefit from investor hopes the airline would cut a deal on labor concessions with its pilots. The

Atlanta Journal-Constitution

reported Wednesday that negotiations were intensifying and noted the pilots union had delivered the company a new proposal on pay cuts. Karen Miller, a representative of the union, confirmed presentation of the new proposal, but declined to provide details. The union last offered concessions valued at about $705 million, but the airline is looking for $1 billion in pay cuts and other concessions.

Delta shares gained 62 cents, or 19.8%, to $3.75 in trading volume about twice their daily average of 4.9 million.

The pressure is on Delta with airlines in the seasonally weak autumn period and emerging from a third quarter analysts characterize as grim. The stratospheric price of jet fuel has bled airlines as they try to wrangle labor concessions and deal with harsh price competition. Any sign that fuel costs will decline is welcomed by investors.

"There's been such a run-up in oil pricing that when we see signs of price easing, we'll see a run-up in stocks again," Stuart Klaskin, partner at KKC Aviation Consulting.

Jet fuel is the second largest cost for carriers, behind labor expenses. Susan Donofrio, an analyst at Fulcrum Global Partners, has estimated that fuel now accounts for roughly 17% of airlines' costs, compared with the historical average of about 12%.

AMR

(AMR)

, parent of American Airlines, the world's largest carrier, has said it will spend $1 billion more this year on fuel than last year and added a nominal surcharge to round-trip tickets to help cover the expense.

The Amex Airline Index rose 2.3%. AMR fell 15 cents, or 2.1%, to $7.00 after logging some early gains;

Continental Airlines

(CAL) - Get Report

shares were off 5 cents, or 0.6%, to $8.57; and

Northwest

(NWAC)

rose 19 cents, or 2.55%, to $7.63.

JetBlue Airways

(JBLU) - Get Report

stock rose 43 cents, or 2.1%, to $21.41, while

Southwest Airlines

(LUV) - Get Report

stock lost 5 cents, or 0.4%, to $13.56.

Still, knee-jerk airline share gains may not be justified given that fuel prices remain very high even though oil is retreating from its peaks, Klaskin said, noting that when AMR made its warning about the year's fuel costs, crude oil futures were trading about $10 a barrel less than their recent high.

The November oil futures contract fell in morning trading on the Nymex but wound up closing more than 2% higher at $53.64, matching Monday's record closing high.