DLAKF - Airline stocks trade lower as investor eye impact of higher jet fuel prices

2023-04-03 12:06:18 ET

Airline stocks traded lower on Monday in reaction to the surprise production cut announced over the weekend by major oil producers in the OPEC+ group.

Saudi Arabia, the top producer in the group that includes Russia, will cut 500K barrels per day . The total new cuts are about 1.16 bpd, bringing total cuts including the previous 2M bpd to about 3.66M, according to Refinitiv data from Reuters. Russia reportedly made a cut of 500K bpd until the end of this year.

Overall fuel price hedging in the airline industry is lower than the historic average. While Southwest Airlines ( LUV ) is reported to have hedged more than 50% of its fuel costs for 2023, American Airlines Group ( AAL ) and Spirit Airlines ( SAVE ) reported no current fuel hedges in place. JetBlue ( JBLU ) recently disclosed that it hedged 9% of its expected fuel expenses.

Outside of the drama over higher fuel prices, the latest reads on bookings demand have been mixed. Corporate channels mostly improved across all metrics this week in Bank of America's scan of credit and debit card spending, while leisure channel pricing decelerated. "At this point, we do not see much risk to pre-announced 1Q23 revenues; however, 2Q23 could be at risk if the current trend continues into April given more off-peak leisure travel periods post Easter vacations," noted the firm. Meanwhile, JPMorgan warned higher jet fuel prices could be tougher for airline to pass on to consumers due to the macroeconomic backdrop.

Notable decliners in the airline sector included Volaris ( VLRS ) -4.50% , Sun Country Airlines ( SNCY ) -3.80% , Azul S.A. ( AZUL ) -3.99% , Frontier Group ( ULCC ) -3.35% , Mesa Air Group ( MESA ), Hawaiian Holdings ( HA ) -3.17% , Allegiant Travel ( ALGT ) -2.66% , and Gol Inhas ( GOL ) -2.60% . In European trading, International Consolidated Airlines Group S.A ( OTCPK:ICAGY ) fell 2.20% , Ryanair Holdings ( RYAAY ) dropped 2.62% , Deutsche Lufthansa ( OTCQX:DLAKF ) declined -0.60% , Air France-KLM ( OTCPK:AFRAF ) shed 2.41% , and easyJet ( OTCQX:EJTTF ) fell 1.20% .

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