Airline stocks have been crashing the past few months as oil prices have continued to rise. Air Canada (TSX:AC) stock has dropped more than 17% in the past three months after seeing its share price soar to new highs back in March. WestJet Airlines Ltd (TSX:WJA) has declined by over 20% during this time as a labour dispute coupled with some negative press over how the airline would have dealt with the situation made investors even more bearish. Chorus Aviation Inc (TSX:CHR) has also been down around 14%.
While Air Canada is coming off a poor quarter that saw the airline post a net loss of $170 million, that hasn’t been the case with the other stocks. However, rising oil prices have turned investors bearish on airline stocks as the price of West Texas Intermediate has risen from around $63 up to around $74 during the last three months, for an increase about 17%, similar to the drop that we’ve seen for the airline stocks mentioned above. Brent oil has also been on a sharp rise from under $68 a barrel up to around $77, for an increase of more than 13%.
Oil is a big expense for airline stocks and profits will definitely take a hit if prices continue to rise. However, with OPEC recently announcing that it will increase production, we could see that momentum start to taper off and oil prices could start to dip, and that could send airline stocks back up in price.
Airline stocks trade at low multiples of earnings, and it could be a great opportunity for investors to buy on the dip.
