Airline Stocks Become Reverse Proxy For Oil Again

The first week of May, crude moved around just over $50. Today it traded just above $69, a 38% increase over that period. Airline stocks have reacted badly to the news. No wonder, the International Air Transport Association recently said that the global airline industry would lose $9 billion this year.

Airlines stocks are on their way to becoming what they were a year ago.

Most major carriers spent the spring and summer of 2008 trading as a reverse proxy for oil prices. United (UAUA), American (AMR), Delta (DAL), and Continental (LCC) all hit multi-year bottoms in July when crude touched $147.

Over the last month, the average stock price of the four companies is off between 15% and 20% while the DJIA has risen 5%.

The airlines stocks are likely to go lower, especially if oil prices press up toward a level of $85, a price target recently released by Goldman Sachs (GS). Last July, AMR dropped to $4.52. It trades at $4.78 today. Oil has moved up almost every day over the last 30 day. The airline stock plunge is probably not over.

Douglas A. McIntyre