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Lower Oil Costs Bad (!) for Airlines: Analyst

Airports in Washington, Baltimore, Philadelphia and Newark that had been shut down by heavy snow resumed operations Thursday on a limited basis. But the Federal Bureau of Transportation said airlines are expect to cancel another 1,000 flights today. Despite the bad weather, are airline stocks worth investing in? Jamie Baker, senior airline analyst at JPMorgan, and Hunter Keay, airline analyst at Stifel Nicolaus, shared their outlooks.

“The good thing about storms is that you see them coming and you prepare for them. Any airline that has an operation on the East Coast budgets for those operations to be completely shut down for at least 2 to 4 days throughout a quarter,” Baker told CNBC.

As for investing in the sector, Baker said it’s been “exceedingly difficult” for investment to generate above-market returns.

“This is more of a trading sector and the fundamentals lean in the direction of a very potentially profitable trade at this point,” he said.

In the meantime, Keay said he is worried about lower costs of fuel affecting airline firms.

“What you have with high and volatile fuel prices are barriers to entry and deterrence for airlines to add capacity, and the biggest risk to our bull case is excess capacity—not higher commodity prices,” he said.

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Top Airline Firms:

Delta Airlines

Continental Airlines

AMR

UAL

JetBlue Airways

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Disclosures:

No immediate information was available for Baker or Keay.

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