The sooner the war in Iraq ends, the better it will be for airlines.
That's the logic driving airlines shares (and most of the market) Monday, after a weekend's worth of news showed that American forces were able to make better-than-expected headway into Baghdad, the Iraqi capital. Airline shares were rallying across the board, with the Amex airlines up 8%, led higher by the older, network carriers that are most at risk of bankruptcy.
, parent of American Airlines, the world's largest airline, was a notable gainer, up 14.9% to $4.54. The move extends a 10-day rally in which AMR shares have nearly tripled.
Delta Air Lines
, which just announced a massive fare sale, rose 9.5% to $10.97, while
rose 12.7% to $7.
Over the weekend, U.S.-led troops pushed into the center of Baghdad, taking casualties but facing far less resistance than expected after two weeks of heavy bombing. Baghdad International Airport is under control, with U.S. forces able to fly in supplies, while one of Saddam Hussein's presidential palaces has been taken and converted into a POW holding center. More than 130 tanks and armored vehicles have swarmed into the city.
Furthermore, "Chemical Ali," Ali Hassan al-Majid, the commander of Iraq's southern front, cousin to Saddam Hussein and architect of Iraq's chemical weapons program, was reportedly killed in an air strike over the weekend.
While the Pentagon and Central Command warned that there could be bigger battles ahead, the recent advances have investors cheering that war could end sooner than later. For the airlines, a long war would spell disaster, further weakening carrier balance sheets and pushing the entire industry to the brink of insolvency.
Three weeks ago, just prior to the commencement of hostilities in Iraq, the Air Transport Association, the industry's trade group, warned of precisely this. In its worst-case scenario, which included another terrorist attack on the U.S. on par with the World Trade Center attacks, the industry would have lost $13 billion, with the ATA saying "a total industry collapse virtually certain."
In the scenario that it deemed most likely -- a three month war with Iraq -- the industry would lose $10.6 billion, but if the war were to end sooner, the industry would lose less than expected. According to the ATA's one-month "Gulf War 1991" scenario, the industry would have losses of $7.6 billion in 2003, improving over 2002.
After three years of losing more than analysts expect, the potential for upside has not gone unnoticed in an industry that has dealt with one calamity after another.