Airline Stocks Surged To All-Time Highs When Oil Was Trading Above $100/Barrel

Brent crude oil came close to $114 per barrel on Wednesday, its highest level since June 2014, as the conflict in Ukraine intensified and sweeping economic sanctions were imposed on Russia, the world’s third largest oil producer.

As a result of geopolitical uncertainty, stocks have largely sold off, with the MSCI World Index dropping more than 2.6% in the month of February.

Global airline stocks, though, finished the month slightly ahead with a gain of about 0.6%, a possible sign that investors were sensing a return to normalcy from the pandemic before the Kremlin began rattling its saber.

But now airlines face a new challenge with higher fuel costs—or so the market seems to believe. Even though demand for commercial air travel increased nicely in the first two months of 2022, with the number of global flights growing 9.3% and number of U.S.-based passengers growing 20%, an index of global airline stocks dipped a moderate 0.4%.

This has created what I think could be an attractive buying opportunity.

Operating Efficiently In A High Fuel Cost Environment

The price of crude has advanced a lot so far this year, and fuel is one of the biggest expenses airlines have. That alone may seem like a major headwind. But higher fuel costs have not necessarily stopped shares from rising.