AP
Sector Snap: Airline Shares Head Higher
Thursday January 10, 12:32 pm ET
Beaten-Down Airline Sector Stages Rally Amid Falling Oil Prices, Analyst Optimism


NEW YORK (AP) -- Airline shares rallied Thursday following a string of heavy losses, after oil futures fell and a prominent industry analyst predicted share prices will bounce back.

The Amex Airline Index, which had been wallowing at its lowest level in years, surged 8 percent to 31.56 in morning trading. Broader indexes fell. The Dow Jones industrial average declined 0.2 percent to 12,708.07.

Oil prices tumbled amid growing concerns over economic weakness in the U.S. Light, sweet crude for February delivery fell $1.52 to $94.15 a barrel on the New York Mercantile Exchange. Prices dipped as low as $93.30 earlier in the session.

Airline stocks often move inversely to oil prices because of the industry's heavy exposure to fuel costs. Investors have also been worried that a weaker economy could hurt demand for air travel.

JPMorgan analyst Jamie Baker offered traders a slightly different take, however. While he acknowledged that "recessions and loss production are facts of life for airlines," Baker noted that "prior recessions have led to market-trouncing gains (for investors), typically coming while the recession is in full swing," according to a research report.

"We believe the stage has been set for yet another recessionary rally," he added.

Baker raised his rating on United Airlines parent UAL Corp. to "Overweight" from "Neutral," noting that the stock has fallen by half from a peak set less than three months ago. Financial and labor risks remain, he said, "but these same risks are palatable at half the price."

UAL shares jumped $3.22, or 12.4 percent, to $29.25.

Northwest Airlines Corp.'s surge was even more impressive. Its shares added $2.94, or 24.5 percent, to $14.95.

Speculation has been swirling that the Eagan, Minn.-based carrier could be a takeover target for Delta Air Lines Inc. On Wednesday, the head of Delta's pilots union suggested in a letter to members that a deal involving the carrier may be close.

"Consolidation may indeed be at our door," Lee Moak, chairman of the union's executive committee, wrote.

Delta shares rose $1.13, or 8.4 percent, to $14.65.