Monday, November 07, 2005

Delta to merge Song operations - Airlines - Transportation - Company Announcements

Delta to merge Song operations - Airlines - Transportation - Company Announcements

Deltaowes more to creditors than it has as assets. Therefore investors should not purchase or own DALRQ shares. If you do own these shares, you should sell them and seek gains elsewhere. Seventy cents per share is not a lot of money but it beats zero by a large margin.

The reason I linked to the above article is because of Delta's addition of first class seats. The company is adding 26 first class seats to 48 planes. This is not being done for the exercise. It is being done because business travel demand is up, way up. Companies are willing to pay for first class seats on the most expensive and most direct flights. Businesses want to save time. They want to have happy employees who are willing to go where ever when ever.

Twenty six seats on 48 planes is an increase of 1,248 seats that command significantly more revenue than the comparable coach class seats. Using a round number, lets say the extra revenue on international flights is only $500 per seat and lets say these seats are used 5 times per week, 50 weeks per year. The product of 1248, $500, 5 and 50 is $156 million dollars per year!

The reason I laugh so hard at the reporting yesterday, (an old story that finally made it to TV) in regard to one new plane flying from New York to an airport 45 minutes from London is because the comparison is like comparing a flea on an elephants back. The flea may be pesky but I'll bet on the elephant to haul my freight and not worry that the flea is going to take over.

CAL and AMR, fly thousands of international "business" flights. I am not saying they turn away the vacation traveler but that they make their money when business demand is filling up high dollar business class and first class seats.

The past couple of weeks has been a fun time for the owners of CAL and AMR shares. Every other day or so, oil has traded down and airlines have traded up. On several days, the broad market has been hammered but the airlines have show great relative strength (down just a little when others are down a lot).

Relative strength is very important to notice when a market rotation is in progress. Right now, large cap stocks are showing strength versus small caps, transports are showing strength versus large caps and consumer staples are edging up just a little. Technology has been all over the place. Google has certainly led the way but the rest has been more of a mixed bag.

The next big bull market move will include technology issues. The starting date is getting close. Most likely, the start will be concurrent with another piece of really "bad news". What ever the "bad news" that kicks off the rally, don't be fooled. The markets may have a rough day or two before making the big turn. I don't expect energy to be the big driver. If I owned energy, I would sell. Peak earnings is not the time to buy but is the time to sell.

If the kick off news is a sharpe decline in the price of oil, it may be that the market goes down because of the down draft of the oil stocks. Again, the relative strength should be noted on the down draft; the stocks that only go down a little on the worste of days will be the ones that go up a lot on the best of days.

Fuel users such as Dow Chemical can be bought with confidence. Atlantic city gaming concerns will benefit from a drop in oil. The big winners will be firms like CAL, LCC and AMR that spend heavily on fuel.

By the way, even though you may be a coach class ticket buyer, you too will see prices going up. To put in the 1,248 first class seats, DAL probably had to pull out more than 2,000 coach class seats. The available seats go down each time an airline upgrades to business class or first class seats. There has been a lot of upgrading happening. The total number of seats available is not climbing nearly as fast as the number of planes in service. Bankrupted carriers have been reducing flights. Utilization is extremely high. Christmastime seat prices are out the roof.

If you plan to fly anytime soon, you should earn your tickets by buying CAL , LCC and AMR. A rare opportunity to buy shares at very low valuations.