US airline stocks rise as oil retreats to pre-Iran war levels (updated)

Alaska Air

Today 17:49

S&P 500 Passenger Airlines index .SPLRCALI hits record high
Q3 earnings could outperform the Street if fuel prices moderate- UBS
Adds analyst comments and shares in paragraphs 6, 11 and 12
By Nandan Mandayam and Anshuman  Tripathy

    June 24 (Reuters) - U.S. airline stocks rose 3% to 7% on Wednesday after crude prices fell to their lowest since before the Iran war, raising hopes that pressure on carriers' earnings could ease, though the benefits are unlikely to be passed on to passengers immediately.
The S&P 500 Passenger Airlines index .SPLRCALI jumped as much as 5% to an all-time high, and is up nearly 13% since its close on June 12, after which the U.S. and Iran announced a peace agreement. The benchmark S&P 500 has dropped 0.5% in that time.
Brent crude futures LCOc1 fell below the $74-a-barrel mark on Wednesday amid signs that more oil tankers are set to move out of the Strait of Hormuz, a conduit for a fifth of the world's oil supplies. O/R
With crude supplies and prices set to ease, airlines stand to save billions of dollars in additional costs as the run-up in jet fuel prices during the Iran war outpaced fare growth. However, an immediate decline in fares for flyers remains unlikely amid tight capacity.
"Sudden movements in fuel prices mean that in the near term the airline’s profitability can change (in the opposite direction of the fuel price) because they have already sold many tickets assuming the previous fuel cost," Morningstar analyst Nicolas Owens said.
UBS said in a note on Tuesday that it sees potential for airlines' third-quarter earnings per share to outperform Wall Street expectations, if fuel prices moderate.
Also, while all carriers are expected to benefit from cheaper jet fuel, analysts say those with smaller fleets and a lower share of premium seats and customers are likely to gain more, as their margins are more sensitive to fuel-price spikes.
Frontier ULCC.O and Southwest LUV.N rose 3% each, while Delta DAL.N and JetBlue JBLU.O rose 3.7% and 4.5%, respectively. Alaska Air ALK.N and United UAL.O were up about 6% each, while American Airlines AAL.O surged about 7%.

        Jet fuel prices, which averaged about $85 to $90 a barrel before U.S.-Israeli strikes on Iran in February, had retreated from a peak of over $170 to an average of $119.17 in the week to June 19, according to the International Air Transport Association.
"The drop in oil prices is part of the story but also the ending of the conflict with Iran means a resumption of industrial ventures that were put on hold and a corresponding increase in profitable business and holiday travel," said Michael Ashley Schulman, partner at Cerity Partners.

    Shares of online travel firms such as Booking Holdings BKNG.O and Expedia EXPE.O were up between 7% and 10%.

 (Reporting by Nandan Mandayam and Anshuman Tripathy in Bengaluru; Editing by Diti Pujara)
 ((Nandan.Mandayam@thomsonreuters.com; Mobile: +91 9591011727;))