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By and large it appears the airlines struggled in the third quarter as the outlook for recovery remained unclear.
Analysts widely believe, on average, revenues at most major U.S. carriers plummeted 20 percent or more in the third quarter due low fares and reduced travel.
American Airlines [AMR
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] chairman Gerard Arpey may have summed it up best when he said, “A difficult revenue environment driven by the weakened global economy continues to overwhelm the benefit of significantly lower fuel prices."
However there were some bright spots. Continental [CAL
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] posted a $2 million quarterly profit despite a 20 percent drop in revenues.
With some glimmers of hope emerging in what's been a bleak industry how should you game Delta [DAL
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] and JetBlue [JBLU
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] ahead of earnings?
“Despite the near time fundamentals, I think there’s a place in every portfolio for exposure to the airlines,” says Gary Kaminsky, former Neuberger Berman managing director. “If oil moves lower the airlines should go higher. And I think analysts are missing the fact that if there’s an economic recovery, yields will be higher.”
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JetBlue
Low-cost carriers such as JetBlue have shown resilience in the last few quarters, posting profits when larger carriers lost money. Overall cheaper fares and heavy ticket discounting have managed to draw passengers to the skies despite a sluggish economy.
JetBlue is also adding routes in spots other airlines are leaving, such as the Caribbean. The carrier has also announced plans to add service to San Francisco and expanded flights from Boston.
JetBlue is expected to post a small profit again this quarter, although revenue may slip because of those cheaper seats.
What must you know?
“I like JetBlue,” says Kaminsky. “We may see an upside surprise in operating leverage because more business travelers are paying higher feels for their experience of this airline.”
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Delta
Delta is among the major airlines that’s been hit hard by weak demand for air travel. As a result the airline has made bold moves to shed both capacity and jobs and cut costs.
Although Delta is widely expected to post a loss for the quarter, JP Morgan included Delta among a group of carriers they said should form the core of any basket of airline stocks that investors buy.
Delta, meanwhile, remains on track with its integration of Northwest Airlines under its wing and expects to receive a single operating certificate from the FAA by the end of the year.
What must you know?
“I think the merger with Northwest will provide dramatic operating efficiencies, muses Kaminsky.
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Trader disclosure: On October 21st, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Seymour Owns (DIG), (MSFT), (AAPL), (BAC), (EWZ), (INTC); Najarian Owns (DE) Call Spread; Najarian Owns (STX) Call Spread; Najarian Owns (XLF) Call Spread; Najarian Owns (YHOO), (YHOO) Puts; Terranova Owns December Crude Oil Futures
For Joe Terranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (CAL)
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DLR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (DBA)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (UA)
For Peter Schiff
Schiff Owns Yen & Foreign Currencies
Schiff Owns Gold
For Moshe Orenbuch
(AXP), (COF), (DFS), (MA), (JPM), (C), (BAC) Is Or In Past 12 Months Was A Client Of Credit Suisse
Credit Suisse Provided Investment Banking Services To (AXP), (COF), (DFS), (MA), (JPM), (C), (BAC) In Past 12 Months
Credit Suisse Provided Non-Investment Banking Services To (AXP), (COF), (DFS), (JPM), (C), (BAC) In Past 12 Months
Credit Suisse Has Managed Or Co-Managed A Public Offering Of Securities For (AXP), (COF), (DFS), (JPM), (C), (BAC) In Past 12 Months
Credit Suisse Expects To Receive/Seek Investment Banking Compensation From (AXP), (COF), (DFS), (V), (MA), (JPM), (C), (BAC) In Next 3 Months
Credit Suisse Has Received Non-Investment Banking Compensation From (AXP), (COF), (DFS), (JPM), (C), (BAC) In Past 12 Months
Credit Suisse Is A Market Maker In (MA)
Credit Suisse Owned 1% Or More Of (V) As Of End Of Last Month
For Jim Cramer
Cramer's Charitable Trust Owns (V)
Cramer's Charitable Trust Owns (WFC)
Cramer's Charitable Trust Owns (PPG)
Cramer's Charitable Trust Owns (CVX)
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