Recession Worries Drive Down Airline Stocks

In addition to a potential US recession, airlines face soaring oil prices, which have recently been setting record highs and leading to increased jet fuel costs. While a downturn in the US economy typically depresses oil prices, that is not a given this time with countries such as China and India booming. "More likely, in our view, is that oil sits tight but revenue trends reverse," said Baker, who expects to see signs of softer demand starting in the second quarter. The airline industry is expected to spend $25 billion more on jet fuel this year than it did in 2002, swamping the $7 billion in staff savings squeezed out during the past few years, JP Morgan said.

The broker lowered its ratings and slashed 2008 earnings estimates on airlines, including American Airlines parent AMR, Delta Air Lines, Continental Airlines and US Airways.

Share

Email to a Friend