TLDR
- Airline stocks rose over 3% in premarket trading Monday after oil prices fell sharply
- Brent crude dropped 7.1% to $85.17 a barrel; WTI futures fell around 6%
- Iran announced it would halt strikes on transit corridors if the US stopped military action in the region
- United Airlines had previously approached both Delta and American Airlines about mergers, with no deals materialising
- Despite Monday’s gains, airline stocks are down sharply in July, with American off 20% for the month
Airline stocks climbed in premarket trading on Monday after crude oil prices dropped following news out of Iran over the weekend.
Delta, United, American, Southwest, Alaska Air, and JetBlue all gained between 2.9% and 4% before the opening bell.
American Airlines Group Inc., AAL
Oil Price Drop Drives the Rally
Brent crude futures fell 7.1% to $85.17 a barrel early Monday. That came after oil hit as high as $101 a barrel at one point last week.
WTI crude futures also dropped around 6% on the day.
The move followed a weekend announcement from Iranian officials. Tehran said it would stop strikes on critical transit corridors if the United States halted its military activity in the region.
Fuel is one of the biggest costs for airlines, so falling oil prices directly reduce pressure on margins.
A Rough Month for Airline Stocks
Monday’s gains come at the end of a difficult month for the sector.
The US Global JETS exchange-traded fund is down 9.4% in July through Friday’s close.
American Airlines is the worst performer, down 20% for the month. United has fallen 13%, Southwest is down 12%, and Delta has dropped 9%.
The sell-off has been tied mostly to rising oil prices and an earnings season that did not fully reassure investors.
Despite that, the JETS ETF is still up 18% over the past three months.
Merger Talks Went Nowhere
Over the weekend, the Wall Street Journal reported that United approached Delta about a potential merger last year. Those talks did not progress.
United also approached American Airlines earlier this year. American rejected the approach.
United CEO Scott Kirby said in April the idea was focused on growth, particularly in international routes and service to smaller communities.
Even if airlines agreed to merge, regulatory hurdles remain high. A federal judge blocked the proposed JetBlue and Spirit Airlines merger in early 2024 following a Justice Department antitrust lawsuit.
Spirit Airlines ceased operations in May after a government bailout deal fell through.
With mergers unlikely, falling oil prices remain the more immediate driver of upside for airline stocks heading into the rest of the year.
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