Size matters: A look at regional air carriers
Today's Financial News - Posted April 24, 2009
There has been a lot of noise from the airline industry this week. But few investors are talking about the big winners. For hefty profits, think small.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The airline industry has been extremely active this week. Thanks to a slew of earnings reports, investors have learned the nation’s skies may be as friendly as the advertisements say they are.
Chances are, you have heard the news from the major players like Delta (NYSE:DAL), American Airlines (NYSE:AMR), and United Airlines (NYSE:UAUA). But I am willing to bet you have not noticed the action at tiny Mesa Air (NASDAQ:MESA) this week.
If you would have bought shares of the company on Tuesday, when I wrote an article that mentioned the substantial upside in regional air carriers, you could be sitting on profits of over 65%. In fact, if you would have bought shares of any of the airlines chief competitors, like SkyWest (NASDAQ:SKYW) or Republic Airways (NASDAQ:RJET) you would be sitting on hefty one-week gains.
Why is this portion of the industry taking off and climbing higher than its bigger, better-known brethren?
Whether you like it or not, it is all about size.
Size matters
With expectations to continuously expand their bottom line, the nation’s largest airlines are constantly forced to take on new ventures, new routes and risky business models. Because they are always seeking to expand, they cannot react to the market’s whims nearly as fast as they need to.
For example, international routes have been extremely hard on profit margins as fuel prices soared, demand dropped and competition increased. But there is no way major airlines could drop these flights without seriously eroding their brand or creating a shareholder uproar.
But companies like Mesa, on the other hand, are nimble enough to move in and out of markets as they please. If one route turns out not to be as profitable as expected, they can quickly dump it instead of being forced to stick with it in order to generate a higher quarterly revenue figure.
Small regional carriers also have an advantage when it comes to federal regulators. Just today, Delta announced it wants to change some of its routes. It will not be able to do it before federal regulators give the go ahead and will certainly not be able to make the changes unless it uses planes with fewer than fifty seats. Meanwhile, small carriers often slip in and out of markets with great ease.
Of course, the airline industry is not alone in its “size” battles. I cannot think of any other time in the nation’s recent history when size matters as much as it does today. Just look at the banks. I sure would not want to be one of the 19 “big” banks. Or a big manufacturer. Or a big retailer.
When the economy contracts like it does every few years, a company’s ability to adjust to the changes in the market prove critical. The airline industry is a perfect illustration. Over the next few months and quarters, expect to hear lots of news from the regional carriers. I suspect many of these firms are going to be acquired for a pretty premium as the industry works to rebuild.
Regional carriers are officially cleared for takeoff.
Next Article: Alliance Fiber Optic: A bargain-basement deal
One Response to “Size matters: A look at regional air carriers”
Your comments are welcome
Follow TFN via RSS or Twitter |
 |
 |
 |
Advertisement
Latest Headlines
- The Big Picture for Sinobiopharma, Inc. (SNBP)
- Beazer Homes USA, Inc. (BZH) and Hovnanian Enterprises, Inc. (HOV) up despite horrid housing news
- The FDA catalyst: 2010 moves in MannKind (MNKD), Roche Holding (RHHBY), Acorda Therapeutics (ACOR) show it still works!
- Steepest drop since Feb. 2009: Here we go again!
- Is the silver run over? Coeur d’Alene Mines (CDE), Silver Wheaton (SLW), Alto Group (ALTO), Hecla Mining (HL), Endeavour Silver (EXK) close down
April 25th, 2009 at 1:21 pm
Sorry, but your comment “Why is this portion of the industry taking off and climbing higher than its bigger, better-known brethren? Whether you like it or not, it is all about size” is way off the mark. Way off.
The only reason that shares of Mesa rose as much as they did this week is because the airline announced that it had managed to finalize an exit from a less-than-positive joint venture agreement the airline had entered into a number of years ago with Shenzhen Airlines