Lower Oil Prices a Tailwind for Airline Stocks

December 18, 2014

Our chart of the week examines how the fall in the price of oil – despite its recent impact on the overall stock market – has benefitted the airline industry and should continue to do so in the near future.

The chart shows how oil prices have steadily declined since June to roughly $56/barrel as of December 16th. Over the same period, U.S. equities — as represented by the S&P 500 — have marched higher, led by stronger than expected earnings and an increasingly favorable jobs market. Given the drop in oil prices, it may not be entirely surprising that airline stocks as a group have been one of the strongest performers in 2014, gaining 34% so far this year. Since one of the largest expenses for any airline is fuel, the recent decline in prices coupled with both the large volume of travelers in the fourth quarter and rise in airline ticket prices should translate to one of the most profitable quarters for a sector already flying high. The nosedive in oil prices may not be the best news for the overall market (seen at the very end of the graph) but should bode well for airlines and the managers who choose to invest in this soaring sector.