3 Airlines Feeling the Effect of Crude's Volatility

Alaska Air Group, Inc. (ALK), Delta Air Lines, Inc. (DAL), and United Continental Holdings Inc (UAL) have been tracking crude's volatility

by Karee Venema

Published on Mar 30, 2015 at 10:49 AM
Updated on Apr 20, 2015 at 5:32 PM

When crude prices began to nosedive last year, everyone cheered that the sell-off would have a positive impact on airlines -- particularly the cost of airfare for consumers. However, this has not been the case, as several big mergers in the industry over the past several years have reduced rivalry among airlines -- which results in the major carriers not having to compete with each other on various routes. So, while consumers aren't getting a fair shake, how have those in the sector been performing in the wake of crude's steep slide? Here's a quick look at airline issues Alaska Air Group, Inc. (NYSE:ALK), Delta Air Lines, Inc. (NYSE:DAL), and United Continental Holdings Inc (NYSE:UAL).

Alaska Air Group, Inc. (NYSE:ALK)

Regional airline ALK has put in a strong performance on the charts since hitting an annual low of $40.69 in mid-October, up roughly 62%. What's more, the shares topped out at a record peak of $71.40 in late January -- the same day oil touched a dreary milestone. Early last week, the security took a turn for the worse amid a big bounce in crude, but found a foothold atop its 80-day moving average. Today, ALK is 0.3% higher at $65.77.

Daily Chart of ALK Since October 2014 With 80-Day Moving Average

In the options pits, call buyers have been active, per the stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.64, which ranks higher than 80% of similar readings taken over the past 52 weeks. Unlike airline passengers, options traders are currently able to scoop up ALK's near-term options on the cheap, historically speaking. The security's Schaeffer's Volatility Index (SVI) of 28% rests in the 22nd annual percentile.

Delta Air Lines, Inc. (NYSE:DAL)

DAL was on fire in the final quarter of 2014, adding roughly 36%. Since hitting a record high of $51.06 on Jan. 23 -- when crude touched a six-year low -- the shares have surrendered 10.9% to trade at $45.49.

Sentiment among the brokerage bunch remains strong toward DAL. In fact, all of the 12 analysts covering the shares maintain a "strong buy" recommendation. Plus, the average 12-month price target of $64.09 stands at a 41% premium to current trading levels -- and rests in territory yet to be charted. Should DAL extend its recent sell-off, a round of downgrades and/or price-target cuts could create additional pressure for the shares.

United Continental Holdings Inc (NYSE:UAL)

UAL went into rally mode after taking a strong bounce off its 320-day moving average in mid-October -- eventually topping out at an all-time peak of $74.52 on Jan. 26, when crude was dawdling near $45 per barrel. Since then, the shares have been churning between $63 and $70, and were last seen hovering around $67.70 -- just above their 80-day moving average.

Daily Chart of UAL Since September 2014 With 80-Day and 320-Day Moving Averages

Put buying has never been more popular, though. Specifically, UAL's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.45 ranks higher than all other readings taken in the past year. This skepticism hasn't spilled outside of the options pits, however. Of the 13 analysts covering the shares, 11 maintain a "strong buy" rating toward the security, compared to two that have levied a "hold" recommendation.

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