Airline Stocks Pull Back From Recent Highs As Oil Hits 4-Year Low

Even as oil prices hit multi-year lows Wednesday, an index of U.S. airline stocks pulled back slightly from recent record highs.

The NYSE Arca Airline Index (NYSE: XAL) closed Wednesday at $93.44, down more than 1 percent from its 52-week high earlier in the week.

At the same time, Brent crude fell below $80 per barrel in intraday trading for the first time since 2010, while light sweet crude hit $77.18, the lowest in three years.

Jet fuel accounts for as much as 35 percent of airlines' operating costs and lower prices for the commodity appear to have outweighed fears that Ebola would keep travelers grounded.

Imperial's Bob McAdoo on Wednesday dismissed concerns that airlines will use lower fuel prices to gain market share with lower ticket prices and higher capacity.

Such a strategy has been observed in earlier oil gluts, and investors worry that a repeat could cut profits.

But McAdoo said current airline management teams "appear committed to maintaining capacity discipline and further improving industry profitability."

As evidence, McAdoo cited American Airlines Group Inc's (NASDAQ: AAL) recent 4 percent cut to its domestic capacity for January and February. McAdoo maintains an Outperform rating and $58 target.

American is up 18 percent year to date.

JP Morgan's Jamie Baker downgraded JetBlue Airways Corporation (NASDAQ: JBLU) Wednesday to Neutral, from Overweight, citing valuation.

New York-based JetBlue shares are up 47 percent year to date. On Wednesday, JetBlue closed down more than 3 percent to $12.53.

Southwest Airlines Co (NYSE: LUV) is up 108 percent year to date. The company said Monday it plans a 6 percent increase in 2015 capacity. Its shares hit a 52-week high Tuesday of $40.06, and closed Wednesday at $39.37.

Other companies in the sector have shown similar strength on Wall Street in the year to date.

Delta Air Lines, Inc. (NYSE: DAL) is up nearly 58 percent since January; Alaska Air Group, Inc. (NYSE: ALK) has gained 53 percent, while United Continental Holdings Inc (NYSE: UAL) is up 44 percent.