Oil price spike knocks airline stocks

But airlines are better positioned than before to take the blow

Airlines should be worried about the uncertain price of crude as turmoil continues in oil-producing Libya and the Arab world. Every cent-per-gallon-per-year increase in the cost of fuel for the industry means USD$170 million to USD$180 million in additional fuel expenses, according to one estimate.
However, restraint regarding capacity increases, new fees and continuing increases in fares will help airlines cope with this latest blow to the market. Airlines have been preparing for resurgent fuel prices for some time. Large-scale capacity cuts and consolidation in the industry are helping airlines to fly fewer but fuller aircraft. Moreover, fare increases and additional charges such as bag-check fees have boosted airline balance sheets.
Many airlines are also taking care to hedge their fuel exposure more aggressively. United Continental, for example, said that it had already hedged 40% of its 2011 fuel consumption by the end of January.


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