Earnings Outlook: Pockets of profit amid airlines' red ink - Airlines - Transportation - Earnings

Earnings Outlook: Pockets of profit amid airlines' red ink - Airlines - Transportation - Earnings

POCKETS OF PROFIT!

5 months ago, airline owners would be happy talking about pockets of profit. Now, writers discount the profits because the higher fuel costs are keeping the pockets from being buckets of profits.

The owners of home builders should express a similar complaint. Profits would be much higher except the cost of building materials has gone up dramatically. It is an old story. You don't hear much about fuel cost and truckers because the truckers are turning profits and like the airlines they are passing along the higher costs.

In the short run, the costs of fuel has absolutely nothing to do with the price of a ticket. The airlines charge as much as the market will bear as do the oil companies. Of course, airlines cannot stay in business if their expenses are lower than their costs for a long enough period of time.

The time of loss is coming to a quick ending. One after another, the airlines net has turned from very negative to a declining negative and in some cases to a positive.

The best news of all is that the majority of investors do not believe it. This is allowing the building of large positions at low prices.

The big carriers are playing hard ball with the discounters. I have not checked the numbers lately but, just a few months ago, the market valued LUV more highly than all the legacy carriers combined. The revenues of AMR, CAL, NWAC or DAL are dramatically higher than LUV revenues. LUV is more efficient and has lower costs. Just remember, it is a cyclical business and the worm has turned.

BUY THE BULL! IT TOOK A LONG TIME TO BREAK OUT TO 4 YEAR HIGHS! NOW THAT THE BARBARED WIRE FENCE HAS BEEN TRAMPLED, THE STAMPEED COULD RUN A LONG WAY!