By Tomi Kilgore, MarketWatch
Shares of airline companies were broadly lower Friday, as a surge in crude oil prices, fueled by concerns over rising U.S.-Iran tensions, sparked fears of rising fuel costs.
The NYSE Arca Airline Index (1083:XX:XAL) slid 2.1% in afternoon trading, but pared earlier losses of as much as 3.2%. The Dow Jones Transportation Average (DJX:DJT) , which includes six airline companies, slumped 1.1% with all 20 components losing ground.
Leading the sector lower was American Airlines Group Inc.’s stock (NAS:AAL) , which tumbled as much as 6.0% intraday before recovering slightly to be down 4.4%.
Among the other Dow transports components, shares of United Airlines Holdings Inc. (NAS:UAL) fell 2.3%, Delta Air Lines Inc. (NYS:DAL) shed 2.1%, Alaska Air Group Inc. (NYS:ALK) gave up 1.9%, JetBlue Airways Corp. (NAS:JBLU) lost 1.9% and Southwest Airlines Co. (NYS:LUV) fell 1.2%.
Cowen analyst Helane Becker had said she expects 2020 to be a “good year” for airlines, despite concerns that a return to service of Boeing Co.’s (NYS:BA) 737 MAX aircraft could lead to a potential spike in supply, and some worries that business travel could be curtailed as some companies brace for slower economic growth.
However, her view of a “good year for earnings and [free cash flow] generation for the industry” was based on fuel and non-fuel costs remaining “relatively stable.”
Continuous crude oil futures (NYM:CL00) climbed 3.1%, pulling back from earlier gains of as much as 4.8% to trade above $64 intraday for the first time since April 2019. The rally came in the wake of a U.S. drone airstrike that killed Qassem Soleimani, leader of the foreign wing of Iran’s Islamic Revolutionary Guard Corps.
Rob Thummel, portfolio manager at Tortoise Capital, which manages $22 billion worth of energy assets, suggested investors shouldn’t be too concerned about crude prices, as history suggests any reactionary rally on worries that Iran could retaliate “would likely only be temporary,” and given that U.S. reliance on Middle East oil is at a multi-decade low.
“[Iran’s] drone attack on one of the most critical oil infrastructure assets in the world in September resulted in oil prices rising by 14% over a few days, but 30 days later, oil prices were trading at lower levels than before the attack,” Thummel said. See Futures Movers.
Elsewhere, Spirit Airlines Inc.’s stock (NYS:SAVE) declined 2.2% and Ryanair Holdings PLC shares (NAS:RYAAY) (LON:UK:RYA) dropped 1.5%.
The U.S.-listed shares of Air Canada (OTC:ACDVF) (TSE:CA:AC) gave up 3.3%, a day after closing at a record high, after Cowen’s Becker downgraded the Quebec-based carrier to market perform from outperform, citing valuation and concerns that the acquisition of Transat A.T. Inc. (TSE:CA:TRZ) may not close until the second half of this year. The stock has doubled (up 101%) over the past 12 months.
The NYSE Arca Airline Index has run up 13.0% over the past three months and the Dow transports has climbed 9.6%, while the Dow Jones Industrial Average (DOW:DJIA) has advanced 9.4%.