Finally, some positive news from airlines, but what's next?
It's been a great month for airlines:
Airlines This Month:
- AMR up 62 percent
- US Airways up 52 percent
- UAL up 40 percent
- Delta Air Lines up 27 percent
- Continental Airlines up 24 percent
This is not a technical move, it's based on fundamentals:
1) United and Delta raise guidance
2) bullish comments from Barclays and JP Morgan (revenue trends improving)
3) AMR raised $2.9 billion in new funding.
What's going on? Traders are starting to believe that earnings-or the lack thereof-are finally showing signs of stabilizing. It looks like the airlines are finally trying to figure out how to make profits, rather than just grab market share.
1) Look at AMR: they are consolidating their operations around their four main hubs--Chicago, New York, Miami, and Dallas, with a minor hub in Los Angeles--this will save big money.
2) Look at the capacity cuts-which are continuing. More rationalization of the airline schedule.
3) Look at the a la carte pricing system. Have you flown recently? I flew back and forth from Vancouver on United last weekend. During the electronic check-in, I was:
a) asked if I wanted more legroom (for about $45)
b) asked if I wanted a "preferred check-in" (for about $15)
c) told I had to pay more money for checking in even ONE BAG.
4) one big X-factor, of course, is oil. If that stabilizes, it will be an added boost to earnings stability.
Of course, the airline industry has been the butt of jokes for decades. This week, the International Air Transport Association (IATA) said the industry needed to consolidate, and would lose $11 billion this year, even more than the $9 billion they had projected earlier. But in 2008, the industry lost 16.8 billion.
"Less bad" seems to be working for airlines as well.
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