Key facts
- Latin American airline stocks climbed on Monday.
- Oil prices declined due to a U.S.-Iran peace agreement.
- The drop in oil prices eased concerns over fuel costs for airlines.
- J.P. Morgan highlighted LATAM Airlines, Copa Holdings, and Aeromexico as favored picks.
Shares of Latin American airlines surged on Monday, buoyed by a drop in oil prices attributed to news of a U.S.-Iran peace agreement. The decline in fuel costs eased concerns over operating expenses for carriers across the region.
LATAM Airlines saw its shares rise 4%, while Copa Holdings gained around 2.5%. In Mexico, Grupo Aeromexico and Volaris climbed 3% and 5%, respectively. Brazil's Azul advanced nearly 6%.
J.P. Morgan issued a note stating that the decrease in fuel prices could support airlines in the near term, although the bank anticipates oil prices will remain relatively elevated over the medium term. The firm identified LATAM Airlines and Copa Holdings as its top picks, citing attractive valuations, stronger balance sheets, and more consistent cash flow. For Mexico, Aeromexico was favored for its earnings momentum and pricing power. J.P. Morgan maintained a more cautious stance on Brazil's Azul and Mexico's Volaris due to company-specific factors, including potential selling pressure at Azul and near-term operational challenges at Volaris. The bank estimates that a 10% fluctuation in jet fuel prices corresponds to approximately an 8% change in airlines' EBITDAR on average.