Majestic Research

Forbes.com

Airlines gain on hopes that passengers are returning, oil prices falling

Published: October 01, 2009

NEW YORK — Airline stocks rose Monday despite a downturn in the broader markets, as oil prices dropped sharply and analysts said airlines are showing some signs of recovery.

Oil prices fell for a third straight day. Benchmark crude for October delivery lost more than 3 percent, or $2.53, to $69.51 a barrel on the New York Mercantile Exchange.

Meanwhile, stocks mostly fell but were off their lows by midday, lifted by small gains in technology and health care shares.

In a note to clients, Barclays Capital analyst Gary Chase said airlines are indicating that revenue is improving significantly in the third-quarter and he expects sales still have a lot of room to grow.

Credit markets are also increasingly open to airlines, he said, which will allow some much needed cushioning. American parent AMR Corp. announced last week it had raised $2.9 billion in cash and new financing. Also, Delta Air Lines Inc. said last week it will launch a private offering of $500 million in senior secured notes due 2014.

Majestic Research analyst Matthew Jacob said Monday that flyers, leisure travelers in particular, are biting now with lowered fares. That’s allowing airlines to hold fares level and consider increasing some fares — good news for revenue.

In afternoon trading, Continental Airlines Inc. led the pack, gaining $1.16, or 7.3 percent, to $17.08. The airline said last week that more people are buying its lucrative last-minute fares, and said it expects to fly fuller planes in the current quarter.

Delta added 43 cents, or 4.8 percent, to $9.39. United Airlines parent UAL Corp. gained 39 cents, or 4.6 percent, to $8.91.