Qantas shares continue to defy rising global oil prices with a rise yesterday of 0.16% to $6.10 to be up more than 20% so far in 2018.
That strength is at odds with an 9% plus rise in oil prices with Brent crude futures hitting three year plus highs on Tuesday and overnight Wednesday around $US72, the highest they global benchmark price has been since December 2014 which was when the great slide in oil prices was gathering pace.
US prices joined Brent overnight Wednesday in hitting highs not seen since early December 2014
Oil prices in fact were up more than 3% in Europe and the US on Tuesday and 1% to 2% on Wednesday and that saw the price of several key airlines come under pressure on both days, with American Airline shares dropping 9% on Tuesday and Wednesday.
On Wednesday May West Texas Intermediate crude oil futures rose $US1.31, or 2%, to settle at $US66.82 a barrel —the highest settlement for the US benchmark since December 3, 2014, according to FactSet data. And June Brent crude added $US1.02, or 1.4%, to $US72.06 a barrel in Europe, its highest since December 1, 2014.
Delta shares (its reports tonight in the US) dipped 0.4% on Tuesday, rivals United Continental and Southwest both fell 1.3% and JetBlue fell 0.6%. Those falls were on a day when the Dow jumped 1.9% and the S&P 500 gained 1.6%. In London shares in IAG, which controls BA and Iberia, fell 0.16%.
On Wednesday American shares fell another 4.3%, Delta shares lost 1.7%, Southwest fell 1.1%, Jet Blue by just 0.1%, while United Continental tumbled by 4%. The wider market was in the red
In contrast to Qantas market beating rise this year, of well over 20%, IAG shares are off 3.8%, American shares are down more than 13%, Delta shares are off 7.7% and Southwestern is off more than 18%. Delta shares are off more than 8%. United’s 4% fall overnight sent it to a loss for the year so far of 3.75%.
US analysts said the share prices fell as the surge in oil prices triggered fresh concerns over cost pressure in the sector. Jet fuel, along with labour are the top two cost items for the airline operators.
Analysts say American and United are both particularly vulnerable to upward swings in oil prices because they have stopped buying hedging contracts that lock in fuel prices.
In February Qantas said its December half fuel costs $58 million, or about 4%, at $1.54 billion and it is looking for total costs of $US3.24 billion. Qantas has capped its 2017-18 financial year fuel costs by hedging around 81%, while it is (at this stage) aiming to hedge around 50% of 2018-19 costs which will allow the airline to participate in any favourable price moves (through options).