Falling Oil Prices Lift Airline Stock

A steep drop in oil prices over the past six weeks has sent airline stocks soaring, including shares of Denver's two largest carriers.

The Amex airline index, which tracks shares of 10 U.S. airlines, is up 16 percent since early August, mirroring a nearly 20 percent drop in the price of oil.

On Wednesday, the cost of a barrel of crude fell $1.20 cents, to $60.46, on the New York Mercantile Exchange, compared with roughly $77 in early August.

Airline shares are sensitive to oil price fluctuations, which impact jet fuel costs - one of the industry's top expenses. In the past four weeks, jet fuel prices have tumbled 21 percent.

Since early August, Denver- based Frontier Airlines' stock is up 34 percent, capped by an 8.5 percent increase Wednesday on its first analyst upgrade this year. Frontier closed at $8.41, its highest close since early January.

Denver's largest carrier, United Airlines, is up 26 percent in the past six weeks and on Wednesday hit its highest close since July.

Continental, American and US Airways also have posted sizable increases in the past month, while gains for low-cost carriers Southwest Airlines and JetBlue Airlines have been more modest.

Analyst Philip Baggaley said the larger airlines, in particular, are benefiting financially from easing oil prices. He also pointed to continued demand for air travel, which set a record this summer, although growth rates are slowing going into the fall.

"Overall, it's still a good airline revenue environment," said Baggaley, with Standard & Poor's in New York. "There's been solid demand, and airlines have made considerable progress on cost-cutting."

Airlines also have been able to regain some pricing power, pushing through numerous fare increases this year.

Frontier, which doesn't comment on its stock price, saw higher-than-average gains. The carrier had a record summer in terms of passenger traffic, and it continues to add service, planes and new markets at a rapid clip. That's helped assuage concerns over the impact Southwest Airlines, which started service here in January, would have on the company.

"While we're certainly tied to the downside of the tumultuous nature of oil and fuel, we also occasionally benefit from the upside," Frontier spokesman Joe Hodas said. "We've also come out lately with a lot of interesting news."

United, which emerged from bankruptcy protection in February, also has been ramping up service in Denver and bolstering its international routes systemwide. It recently posted its first true quarterly profit in six years.

INFOBOX

Lighter burden

Many airline stocks have soared since early August, helped by falling jet fuel prices:

* Continental + 38 percent

* Frontier + 34 percent

* American + 29 percent

* US Airways + 29 percent

* United + 26 percent

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