From the look of things on Tuesday you’d never know that the airlines are just about struggling to stay in business. If you just looked at them today you’d see the sector enjoyed double-digit gains. Not bad, except that’s largely driven by oil’s sharp decline.
The skies have been more like a war zone over the past several months with soaring energy prices wreaking havoc on carriers.
Three gloomy earnings reports underscore that very issue. Disregard all the green arrows you see on the page, because for the quarter United Airlines, US Airways and JetBlue reported sharp losses.
And last week, so did American and Continental Airlines . Each and every time these airlines cited the fact that high fuel costs are crippling the industry and drastic action is needed.
"Airlines stocks are totally sensitized to what happens to oil prices, for the very simple reason that fuel costs now exceed labor costs," says Julius Maldutis, president of consulting firm Aviation Dynamics.
Maldutis' outlook for the industry remains negative.
With oil at these prices, JetBlue CEO Dave Barger thinks profitability, “is function of reduced capacity across the United States,” he says on Fast Money.
And the high price of oil doesn't just impact fuel cost. It also prevents people from flying on their vacations. “It’s driving out an awful lot of industry capacity,” he says. “I think we’re going to see the industry get smaller in 2009.”
And that has a direct impact on growth. “We plan to have flat growth going into 2009,” he explains, “and we’ll make sure head count is commensurate with that growth.”
However, Barger does have some money making strategies up his sleeve. “We plan to offer customers the opportunity to purchase up into a more comfortable seat.”
Traders, what do you think?