Rebound in oil prices pressure carrier shares

Jun.20, 2008 in Market Outlook

Airline shares descend as oil prices rebound

By Christopher Hinton, MarketWatch

Last Update: 6/20/2008 3:13:00 PM

NEW YORK (MarketWatch) — Airline stocks were declining Friday on rebounding oil
prices.

The Amex Airline Index (XAL) slipped 7.5% to 17.99 points with all of its 14
components in the red. The index climbed more than 10% in prior-day trading after
China said it would raise its retail prices for diesel fuel, which could help
raise the supply of jet fuel.

Oil prices had dipped, but rallied Friday to $135.85 a barrel on the New York
Mercantile Exchange, up $4.02. It finished last Friday at $134.86. See Future
Movers
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Down sharply was United parent UAL Corp. (UAUA), off about 11% to $7.19 after
soaring more than 23% in prior-day trading. US Airways (LCC) fell 10.2% to $3.18
and Delta (DAL) lost 8.3% to $5.85.

Shares of AMR Corp., the parent company to American and Eagle airlines, were
upgraded to buy from sell at Solebury Research. In the Friday note, Solebury
analyst James Higgins said the Fort Worth, Texas-based carrier had made more
progress in its revenue and cash flow generation than expected.

“We cannot rule out the possibility that AMR could be forced into Chapter 11 over
the next 18 months or so, but the probability of that outcome is very much
diminished relative to our previous view,” Higgins wrote in the note. He also
raised his price target for the carrier to $12 from $3.

Shares of AMR (AMR) traded recently at 3.3% to $6.10.

Late Thursday, Continental Airlines (CAL) priced 11 million shares of its class B
common stock late Thursday at $14.80 each. UBS Investment bank was the sole
underwriter in the deal.

Earlier that day, Continental and United Airlines said they plan to establish a
joint venture that will allow them to cooperate with each other on flights, fares
and services as a way to help reduce costs. See full story
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