Tuesday, October 25, 2005


American Air parent posts loss as fuel bill mounts - Airlines - Transportation - Earnings

AMR's fuel bill went up $230 million dollars for the quarter. The company lost $95 million for the quarter. The reason we purchased this stock in our Stock of the Week portfolio is because we think the profits will be quite large when the fuel costs are reduced.

A friend asked me how I can be so confident that fuel cost are going down. My answer is that once the oil price increased to over $20 per barrel, it became profitable to mine tar sands and to convert coal to diesel. The planet still has 200 years worth of coal and tar sands to use.

The only question for me is, how long will it take for new supplies to exceed new demand. World wide demand has been growing at 1.6% per year. There is evidence that this rate of growth is going to slow. The current price is causing significant usage shifts. New supplies are available, the question about increasing supplies is more of a question about increasing refining capacity. Most of the new refineries planned or under construction will take until 2008 to complete. Inhancements in Austraila and a new GTL refinery in China will come on line soon. Other incremental improvements will gradually make a difference.