Occupancy, oil prices, and stock returns: Evidence from the US airline industry

This paper examines whether occupancy of seats affects stock returns of airline companies and how this relationship is affected by WTI oil prices. Our approach combines revenues (occupancy) and costs (oil prices) for 33 U.S. airline companies from 1990 to 2019. Using travel capacity utilization data from U.S. carriers at monthly frequency and exploiting fixed-effects regression models, we document a positive relation between occupancy and stock returns, which is attenuated by oil prices. The role of oil becomes larger with asymmetries: the effects of oil prices are higher when moving up than down. Airline stocks always respond by more than the overall stock market.