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Jan 25, 2018

S3 Analytics: Shorts Up $314 million on Airline Stock Turbulence

Airline stocks are trading down today as United Airlines (UAL) announced an expansion plan to increase seating capacity over the next three years in an attempt to snare market share and bump up revenues. This strategy is contrary to today’s general airline industry philosophy of slow growth in an effort to keep airline seat capacity in line with customer demand.

With memories of recent price wars hurting every airline’s bottom line and forcing undercapitalized and route starved airlines into bankruptcy or consolidation talks, investors immediately punished the entire sector, driving the average airline stock price down over 4%.

While long airline shareholders were busy looking for their complimentary airsick bags, short sellers were enjoying today’s bumpy ride that turned 2018’s net losses into profits. Airline stock short sellers were up over $314 million in mark-to-market profits today, a 6.1% return on their $5.15 billion of short exposure. The biggest winners were American (UAL), Delta (DAL) and United (UAL) short sellers, who were up $207 million in mark-to-market profits today, two-thirds of today’s total winnings.

Short interest in the Airline Sector has been increasing lately, up $566 million or 12% over the last month. We should see short interest continuing to climb, especially if more airlines refuse to heed Circe’s warnings and succumb to United’s Siren-like call for expansion.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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