June 12 Shares of major U.S. airlines dropped
for a second straight day on Thursday as oil prices climbed to a
three-month high in the wake of the worst fighting in Iraq since
the U.S. troop withdrawal in 2011.
American Airlines Group Inc, the world's largest
carrier, tumbled 5.4 percent, while United Continental Holdings
Inc 5.7 percent and Delta Air Lines Inc dropped
5 percent. The sector also fell on Wednesday, when German
carrier Deutsche Lufthansa AG pared its profit targets
for the next two years, citing greater competition
Southwest Airlines Co and JetBlue Airways Corp
were both down more than 4 percent.
Brent crude oil climbed topped $112 a barrel on worries that
escalating violence in Iraq could disrupt oil supplies from the
major OPEC exporter. Fuel and labor are the biggest costs
Kevin Crissey, an airline analyst with Skyline Research,
said newer investors were likely not accustomed to the volatile
effect of fuel prices on the sector. He also said profit-taking
was likely playing a role in the sector skid.
"This shouldn't be an indictment to everything good that's
been going on in the industry," Crissey said. "The
consolidation, the capacity discipline, that's all still true,
but fuel still matters."
Shares of airlines have rallied over the past year as
carriers moved to enhance shareholder returns. Last month Delta
said it would raise its quarterly dividend by 50 percent and
launch a new $2 billion share buyback.
Even with the declines over the past two days, Delta shares
have risen about 39 percent so far this year, and American is up
about 57 percent. Alaska Air Group Inc, which announced
a 2-for-1 stock split on Thursday, has risen about 27 percent
this year. It was off 3.6 percent on Thursday.
Crissey said he expected airlines to be profitable despite
the latest rise in oil. "It shouldn't change the overall thesis
that the airlines are doing quite well, demand is decent, their
capacity discipline is in place and there's fewer of them,"
Crissey added. "It's still a very attractive time for the
Iraqi Kurdish forces took control of the northern oil city
of Kirkuk on Thursday, after government troops abandoned their
posts in the face of a triumphant Sunni Islamist rebel march
toward Baghdad that threatens Iraq's future as a unified
(Reporting by Karen Jacobs in Atlanta; Editing by Jeffrey