Crude Oil (Brent) is trading at about $82.79 USD/bbl., which means that a lot of producers relying heavily on fuel are seeing their inputs cheapening. The trend has been depicted in the automotive industry with the latest shift towards SUVs, but for the airline industry this means an increase in capacity and coverage for the services, according to CNBC. However, it’s not that straightforward as American Airlines Group Inc (NASDAQ:AAL) is a clear winner while Boeing Co (NYSE:BA) is surprisingly lagging.
“Airlines always have to be cognizant of what the profit maximizing level of capacity is going to be and, certainly, markets that would not have been profitable at $3 jet fuel are potentially profitable today at $2.40 jet fuel. So, I would expect to see some capacity to creep,” said Jamie Baker JPMorgan U.S. senior airline equity analyst.
Now, it’s not that much of a counter-intuitive thing to see Boeing Co (NYSE:BA) registering an almost 2% increase throughout the last 5 days, compared to American Airlines Group Inc (NASDAQ:AAL)’s leap of approximately 19%. First of all, the latter company offers travelling services to customers, which is a process that heavily relies on fuel consumption whereas the former business produces planes with low cost in terms of oil. As a second reason it might be the case that companies can use less fuel-efficient planes as the prices are low, instead of procuring a new jet from Boeing Co (NYSE:BA). Obviously, these cannot circumscribe all the effects that would explain why American Airlines Group Inc (NASDAQ:AAL) is on an upswing, mostly due their extensive general approach. Nevertheless, this is what can be inferred from analysts’ opinions.
“American Airlines, ticker AAL, it’s the only major airline in the United States that doesn’t hedge at all. Lower fuel prices will catch up a little more gradually for names like Delta United South-West and others. But if fuel is the only thing that you’re looking to play here, American is the way to do it,” informed Jamie Baker.
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