Falling Oil Puts Airline Sector Up In First Class (UAL, DAL, LCC, LUV)

Is the economy so weak that the summer and rest of 2012 will be punishing on the airline industry?  Apparently not.  Have you been to an airport and flown lately?  Chances are high that if you then you probably noticed that planes are full and often overbooked.  The drop in oil may be hurting the oil players today, but the airline sector is one of the few bright spots for investors despite a 20 point drop in the S&P 500 and a 160 point drop in the DJIA.

Here is how some of the major airline carriers are trading today: United Continental Holdings, Inc. (NYSE: UAL) is up 3% at $22.22; Delta Air Lines Inc. (NYSE: DAL) is up 1.1% at $11.08; US Airways Group, Inc. (NYSE: LCC) is up 1.2% at $10.84.

The one exception is Southwest Airlines Co. (NYSE: LUV) with its shares trading down 1.3% at $8.11 because it is a hedge-play.  Southwest is an airline which often is more active in hedging out its oil price exposure, so a drop of more than 5% in oil prices from the peak in oil this week does not necessarily translate t quite as high of savings for Southwest.

What is important to remember here is that a $1.00 drop in crude is supposed to be worth about $400 million in profits to the airline industry.

JON C. OGG