Friday, September 23, 2005 - Airline Pulls the Plug on Outlets - Airline Pulls the Plug on Outlets

AWA (American West Airlines) moved up better than 5% today in the face of Rita. I attribute the move to the linked Wall Street Journal article (subscription required). The article spoke about cut backs to USAir amenities but the real key was the hint that NWAC and DAL will have to cut back routes as these companies have little else left to cut. AWA has a number of competing routes with NWAC and USAir competes with DAL on the east coast. Any carrier with excess capacity on any route will consider trying to fill the abandoned routes. The interesting thing is that carriers in general have very little excess capacity. Load factors are the highest in the history of the industry.

I must give my son-in-law and daughter brownie points for tenacity. They purchased additional shares of AWA this morning. I appreciate their confidence in my analysis. It is really a simple story; at some point a declining industry reaches what is referred to as the clearing price. At the clearing price, only the foolish want to enter the business and many of the weaker players get cleared out. The remaining players are in the position of being the only option available.


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