Fuel prices lead shorts to build up in airlines

Top U.S airline American Airlines Inc has warned rising fuel costs would force it to eliminate flights and hundreds of jobs. CEO Gerard Arpey told the FT: "The airline industry was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S economy."

You will see from this chart that AMR, who own all of American Airline's common stock, has seen a recent surge in short interest - from 13% in early April to 18.3% today. Interestingly, it is still fairly easy to borrow AMR, with Utilisation at 48%. There are 15 Days to Cover. The average Utilisation for the rest of the U.S Small Caps is 18%, and for the rest of the North America Transportation it is 13%.

America is not the only place where the rising cost of oil has affected air travel. In the UK, British Airways has seen a rise in short interest, after the fiasco at Terminal 5, with 10% of its Market Cap on Loan. Although short positions have been covered in easyjet, there was a 400% increase between August 2007 and mid-April 2008 from 2% to 8%. In Hong Kong, Cathay Pacific has seen a huge amount of short interest (as seen by this graph), with 5% of its Market Cap on Loan (big for an Asian company).

Air China also has 4.5% of its Market Cap on Loan, a rise from 3% in early April.