What’s under the hood of AAR?
Today's Financial News - Posted December 15, 2009
It is a pivotal day for the airline industry. With its latest earnings figures due out after the closing bell, that may not be good news for AAR Corp. (NYSE:AIR).
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): When I married my wife, I should have hired a personal travel agent. With family in North Dakota, Idaho, Washington and Alaska, she has a constant eye on airline prices.
The second a deal hits the wires, she knows about.
With the holidays upon us, she’s found some great deals. It is good news for us and our family, but bad news for the airline industry. Lower fares mean lower margins and, in this economy, even larger losses.
The airline industry is buzzing today, not so much because Boeing (NYSE:BA) is expected to finally get more than the front tires off the ground of its 787, but because the International Air Transport Association (IATA) announced airlines will lose some $11 billion this year and another $5.6 billion in 2010.
The pessimistic outlook is significantly below previous estimates, driving down share prices across the industry.
A costly mid-air stall
With stubbornly high fuel costs and heavy competitive discounting, many airlines are unable to take advantage of recent wage concessions and other fixed-cost reductions. Even with a rebounding global economy, vacationers are staying home and business travel remains well below recent levels.
That is not good news for the nation’s largest carriers. Across the board today, shares of companies like Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV), UAL Corp (NASDAQ:UAUA) and AMR Corp. (NYSE:AMR) started the day in the red.
After a run of decent gains started in early November, the industry’s shareholders may see their recent profits begin to erode.
Today’s news came at a pivotal time for AAR Corp. (NYSE:AIR) shareholders. The aviation-industry service provider will release its latest quarterly earnings figures after today’s closing bell.
Turbulence ahead?
Even if the word is positive, shareholders may have a tough time swallowing a cheery long-term outlook. Even worse, if the figures miss analyst estimates, the fallout during tomorrow’s trading session could be rough.
The best thing that could happen for airlines right now (besides a bailout) is a significant drop in crude prices and a stronger dollar. A strong greenback will get tourists boarding high-margin overseas routes and lower crude costs will significantly boost margins across the board.
If you are like me and believe these criteria are on their way to being met, then you’re an airline bull. If you think recent trends are a mere blip in the charts, then, like hordes of analysts, you’re an airline bear.
We will find out over the next two months which direction the industry is heading. No matter where it goes, there is no doubt this is a pivotal day.
Next Article: TFN eNews 12/15/2009: The next mega-building boom — and who will be profiting from it
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