Dow Tumbles, Airline Stocks Descend on Iraq Unrest
The Dow Jones Industrial Average logged a second-straight day of triple-digit losses on Thursday, as Sunni forces in Iraq threaten to take over the country from the Shiite government. The U.S. hates to see the Iraqi security forces it helped to train fall so easily and, at a press conference today, U.S. President Barack Obama said his administration would not rule out the option of using airstrikes to repel Sunni militant fighters. With oil skyrocketing on the unrest in the Middle East, the Dow shed 109 points, or 0.7%, to end at 16,734.
Walt Disney fell 1.8% today, nearly finishing as the blue chip index's worst performer. According to a Reuters report earlier this afternoon, Harrison Ford injured himself while filming on the set of Disney's Star Wars: Episode VII, set for a holiday 2015 release. The actor's ankle injury doesn't sound serious, but it must have investors wondering how well the elderly trio -- of Ford, Mark Hamill, and Carrie Fisher from the original Star Wars films -- can channel "The Force" to avoid mishaps like this going forward. An optimist might point out that Jedi Master Yoda was able to remain nimble for centuries on end.
Unlike "The Force" in Star Wars, oil is not a legendary source of mysterious energy, able to be harnessed only by those who choose to study, practice, and master it. Burn oil, and machines come to life; it's that simple. Airlines like United Continental and Delta Air Lines burn oil to make airplane fleets come to life. Then they fill their planes to the brim with people, who pay for the machine to take them somewhere else. Sound familiar? Simply put, this is why United Continental, Delta Air Lines, and other air carriers hate it when oil prices shoot up, as they did today.
United Continental lost 5.9%, and Delta Air Lines stumbled 5.4% in trade on Thursday, as the price of crude oil shot up 2.4%, to $106.86 a barrel. Perceived or actual disruptions in the oil supply caused by geopolitical shifts in the Middle East are not unusual, but if the effects are long lasting, the airline industry will either suffer from crimped margins, or pass on the higher costs to you, their beloved customer. While extremely sensitive to energy prices, most airlines hedge their exposure to price fluctuations with bullish futures contracts, so that when their costs go up, they also make some money through their hedge.
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The article Dow Tumbles, Airline Stocks Descend on Iraq Unrest originally appeared on Fool.com.John Divine has no position in any stocks mentioned. You can follow him on Twitter @divinebizkid and on Motley Fool CAPS @TMFDivine. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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