Blog > US Stocks and Markets > Blog article: Airline Industry: Where’d it go?
 | Email This Article Email This Article  | 

Airline Industry: Where’d it go?

Posted April 4, 2008

“By Memorial Day, the nation’s media will be focusing on the horrid demand for long-distance summer travel and rising fuel costs. ” - Andrew Snyder

By Andrew Snyder

Baltimore (TFN) — Over the next two months, I will find myself taxiing to a runway nine more times.  I have flights scheduled to cities across the nation from D.C. to L.A. and even two third-world countries.  For the most part, I bought my tickets months ago.  Although it did not look like it at the time, I got some great deals.   But now, I cannot help but wonder if those tickets will be any good in a few weeks.  Will the airlines still be in business?

By now, you must have heard the news out of ATA Airlines. It lost a major government contract and was forced out of business.  Yet another carrier flies right into Chapter 11. 

Some analysts believe the airline shakeup will ultimately be a blessing for the nation’s carriers.  With less competition, they say, margins will increase and profits will rise.  I don’t buy it.  Today’s news from British Airways, one of the world’s strongest carriers, proves it.

The company says its business-class bookings fell by over 5% in March.  It may not sound like a huge hit, but you must realize its premium-class fares account for more than 60% of its profits.  Thanks to a slowing global economy, this drop in business travel will have a significant impact on the company’s next earnings report. 

Clear for Takeoff?

It is the same scene across the globe, but few airline executives are willing to admit it. It is creating a fantastic opportunity for investors, especially options investors.

Take a look at Northwest Airlines.  It was forced to break one of the oldest rules in business.  On the same day one of its strongest competitors announced a significant decrease in air travelers, Northwest raises its fares.  Demand dropped and it raised its prices.  It is a fatal recipe.

Here’s where the investment opportunity lies.  Northwest’s share price has risen by more than 10% this week, as some investors believe the industry shakeup will ultimately help strengthen the nation’s airlines.  I don’t buy it, especially with a narrow-based carrier like Northwest.

Memorial Day Sale

As air travel demand diminishes and costs rise, the company’s share price is bound to continue with its negative trend. This makes right now a great time to buy some put options.  Share price is temporarily higher, giving you a shot at even larger profits without taking on any more risk. 

By Memorial Day, the nation’s media will be focusing on the horrid demand for long-distance summer travel and rising fuel costs.  Northwest’s shareholders will be tripping over themselves to unload their positions.  The put options you buy today will be worth much, much more.

With an expectation of a major move by Memorial Day, the June 7.50 Puts (NWARU.X) are a fantastic profit opportunity. 

When an industry has this many things stacked against it, you know success is not an option.  You do not see homebuilders raising their prices.  Or SUV manufacturers bumping up their sticker prices.  So why would anybody think raising airline ticket fees is a good idea?  

The nation’s airline industry is in big trouble.  Here is your chance to profit from the not-so-friendly skies.

 


Related Articles


Posted by Andrew Snyder · Filed Under US Stocks and Markets 

Comments