European Airline Share Rout Continues on Oil Hedging, Coronavirus Fears

By Caitlin Ostroff

European airlines' shares were on track for their biggest weekly declines in years, as investors feared they could be hurt more severely by falling oil prices than their U.S. counterparts.

A slide in oil prices since the beginning of the year could mean European airlines pay more for jet fuel than American carriers. Most airlines in Europe are locked into contracts that set out how much they pay for oil over the next one to two years, said Adrian Yanoshik, a transportation equity research analyst at Berenberg Bank. U.S. airlines don't have such hedges in place.

Brent crude oil, the global benchmark, fell 1.5% to $53.45 on Wednesday on fears that the coronavirus's spread to Europe could further crimp demand for oil.

Shares in Ryanair Holdings PLC and easyJet PLC fell 3% and 2.1%, respectively. Both have declined more than 15% this week, on track for their worst week in a decade, largely because of concerns among investors that the viral outbreak will hurt demand for travel. Both airlines are widely dependent on Europe for revenue.

Coronavirus cases in Europe have continued to climb, with Italy reporting 105 new cases on Tuesday, according to the World Health Organization. Greece, Switzerland and Oman reported their first cases as well. "The shares now are pricing in more of a widespread impact," Mr. Yanoshik said.

Shares in U.S. airlines have also fallen this week. When flights to China are canceled, many larger aircraft are reallocated to domestic flights, increasing capacity for those flights and likely driving down prices. This has started to have a knock-on effect on shares of more U.S.-focused carriers.

"As a group, it is starting to price some sort of domestic impact as well," Mr. Yanoshik said. "The fact that Southwest is down as well is kind of indicative of that." Shares in Southwest Airlines Co. have fallen 12% this week.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com

(END) Dow Jones Newswires

February 26, 2020 09:31 ET (14:31 GMT)

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