i have been posting about liking airline stocks but I thought i’d write this thread up to share my views on them.
their is a silver lining to this gloomy situation our economy is in.
Airlines will make a killing next year with oil this low and and will be lower. Even if this recession is in epic proportions. many of the airlines have already had capacity cuts already this year because of high oil prices. making them more efficient as a business. they also raised prices and have been charging extra for everything from drinks to bags.
Capacity cuts : they cut back even further when oil went to 147/ barrel.
Even before getting a break from falling oil prices, airlines were committed to big capacity cuts. Domestic capacity this fall will be down 10% to 12% vs. the fall of 2007, while 2009’s overall capacity drop is expected to go even deeper into double digits.
US Airways President Scott Kirby said at a recent conference that investors don’t appreciate the magnitude of the changes airlines made to cope with $147-a-barrel oil.
“The prior economic slowdown was not accompanied by capacity reductions of this magnitude, implemented in advance,” Steenland said in Northwest’s earnings conference call. “The airline industry in general and Northwest in particular are well positioned to prosper.”
Oil prices : huge money for airlines. I remember hearing that every dollar that oil drops equals to 40 million for delta, i think it was 80 million after the merger. oil prices have fallen dramatically and will continue to fall. this means Big profits for airlines.
ill post an article about NWA northwestern below about their savings from oil next year.
The big bad recession----- bring it on
airline revenues dont get hit very hard from recessions. read below.
Even during the most severe historical economic downturns, industry revenue has declined by no more than 1.2% annually, Northwest said in a prepared statement. At that rate, the carrier would experience a $150 million revenue decline, which would be offset by a projected $1 billion decline in fuel costs if fuel averages $78 a barrel in 2009, compared with $104 a barrel in 2008. P/>Northwest also expects $2 billion in annual synergies resulting from its pending merger with Delta(DAL Quote - Cramer on DAL - Stock Picks). That deal is expected to gain regulatory approval shortly
•In 1991, recession caused only a 2% drop in airlines’ annual revenues.
•In the 12 months before the 9/11 terrorist attacks — a period that included the bursting of the dot-com stock bubble and a mild recession — annual revenues dropped just 1%.
In 2003, fears about Severe Acute Respiratory Syndrome (SARS) caused a 40% drop in revenues on trans-Pacific routes, and worries ahead of the start of the Iraq war drove an 8% drop in domestic revenues. Yet, annual revenues for all of 2003 fell just 3%.
the only negatives is the credit crunch and staying liquid to get through, but oil prices have already dropped so the airlines should be making a lot more profit already. DAL/ NWA will merge soon they have 3-4 billion cushion. UAUA also has a cash reserve to draw from the number escapes me but i think its 2 or 3 billion. CAL, AMR, LUV,LCC may also have cushions too but i know of the top of my head.
check which airlines have less hedged fuel for the remainder of 08 & 09 and will come out better than others also if you plan on going with airlines.
It’s no coincidence airlines sector have gone up for i think the last 10 days straight.
I bought back DAL and UAUA wednesday.
i plan on adding CAL, AMR , LUV and even LCC
the best thing is you can hold these through the up and down market knowing in time they will soar and i dont mean years. they will gain quickly. i think the main reason people dont invest right now is the volatility in the market. Airlines are kicking the bears asses up and down wall street.