The turmoil in the world’s markets has also impacted airline shares, with most falling to lows not seen since 2008. In the US, the NYSE Arca Airline Index fell to its lowest level since December 2009 by more than 3% to 30.86 points. All but two of its 15 companies experienced falls yesterday.
American Airlines parent AMR Corp. shares fell by 6% to $3.40, while shares of US Airways also fell by 6% to a 19-month low of $5. Delta Air Lines fell more than 4% to $6.41, with JetBlue Airways shares falling by 3% to a $3.97.
Copa Holdings, Lan Airlines, Tam and Gol Linhas also experienced sharp falls.
Despite oil prices falling to two-year lows, with Brent crude oil falling below $100 a barrel, airline stocks did not escape the general fall in the markets. Investors are spooked by the general trading environment but also are fearful another recession could impact business travel and cargo – the main revenue drivers for most airlines at the moment. Moreover, many airlines have hedged at around $90-$100 a barrel, some could be at risk at losing this quarter if the falls continue although longer-term the likelihood is fuel will continue to rise, albeit more slowly.
An analyst at RBC Dominion Securities, Walter Spracklin, has slashed his price targets on both Air Canada and WestJet Airlines following the volatility in the markets and fears that investors will not be attracted to airline stocks in the mid-term.
Spracklin says the current economic deterioration will lead to lower demand in the second half of the year. He could be right, as businesses and individuals hunker down for a stormy third quarter.