After an extended period of decline and reaching nine month lows earlier this week, Airline stocks began a two day rally after oil sank to its lowest levels in months. In spite of the drop in prices, the cost of jet fuel has have scarcely changed, representing continued challenge to the ailing sector.
Airlines have had to raise their prices several times this year as well as adding additional fees to fares, an attempt to compensate for the rising price of fuel. As a result, volume on planes has been consistently lower and airlines have been losing money. One exception to this rule; however, is JetBlue Airways Corporations (JBLU). The company reported 10.6 percent year-over-year traffic increase in May. Traffic is measured in billions of revenue per passenger mile or one mile flown per one passenger.
Year-over-year, capacity increased by 8.9 percent while load factor grew to 82.6 percent from 81.3 percent in May 2010.
JetBlue was joined by Southwest Airlines Co. (LUV) in stronger May traffic, while rival companies Delta (DAL) and American Airlines (UAL), continued to suffer. Southwest mirrored JetBlue's traffic growth last month while Delta’s traffic added a less impressive 2.2 percent and American Airlines' traffic pushed up 1.1 percent. United Continental traffic actually declined by 0.3 percent.
Jetblue’s success may have something to do with their flash sales, which encourage fast buying and quick influxes of cash. Additionally, the company has increased fares and instituted a number of fuel-heding strategies. They also announced a new flight to St. Thomas today, which could prove to boost revenue. The company anticipates a 19 percent year-over-year increase in unit revenue for the month of May or passenger revenue per available seat mile (PRASM) with second quarter increase of 13 percent to 15 percent from the same period in 2010.
Strangely, much of the stock progress has been inverse. United Continental (UAE), the only company to fall in traffic, saw the highest increase in stock prices, with over a 5 percent rise. Delta also made considerable gains, as did American Airlines. JetBlue pushed up considerably also, while Southwest, which dealt with technical difficulties earlier in the year continues to struggle.
The question remains whether investors will come to regret their investments in this sector. Some have chosen to invest on the dip when oil has fallen before, like in February, but have thus far been disappointed by the results. There remains a considerable disparity between oil and jetfuel prices that causes the airlines to continue to suffer in spite of the price of oil.
Jet fuel spot prices were $3.20 a gallon earlier in the week according to the U.S. Department of Energy, only 5 percent less than their April peak regardless of the dramatic decline in oil pricing. In December, jet fuel was around $2.50 a gallon.
Jetfuel and oil are usually more in line with one another at around $10 difference per barrel between the two. Right now, the disparity is around $30 a barrel.
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