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American Airlines (NYSE:AMR)

Oct 23 2008

American Airlines (NYSE:AMR)

American Airlines is seeing its stock decline by near 12% today as gas rebounds after a prolonged down trend in the commodity. Airlines generally move in the opposite direction of gasoline as fuel is a large part of their variable expense in flight costs. Only Southwestern was able to hedge against the large spike in gasoline that the US experienced over the summer. But the decline in oil has helped the airline industry tremendously.

OPEC Stiffens

Today OPEC has moved to reduce production barrels of oil to help boost the price and their profit margins. This has led to close to a 3% rally in oil. I think the longer term decline in the price of oil will continue and see the airlines as a way to play this continued decline. Global economies are slowing including the US and China, therefore demand for oil is being reduced leading to the drop in price.

The Trade

Over the past two weeks, American Airlines has moved from a low of $6.45 share to its most recent close at $11.97. This one day spike in oil prices provides a good opportunity to create a small position in an airline like American. This is not based on fundamentals but the inverse trade action of airline stocks to the price of oil solely.

Suing Yahoo!

In a related note, American Airlines has sued Yahoo! over the use of specific trademarked terms which Yahoo! has allowed competitors to bid on for search traffic. The company recently sued Google for similar damages and settled with the search giant out of court.

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