InformationWeek > Travel > Struggling Airlines Try Portals For Business Travelers > November 28, 2005

CAL,DAL and NWAC continue their integration progress. Earlier I mentioned that each has made its airport clubs or lounges open to the others passengers. The move not reported is the plan to offer small businesses a combined online booking portal.

The internet has changed the airline business forever. The middleman or travel agents have been bypassed for lower cost online reservations. Travel agents will continue to serve the public but the percentage of tickets booked directly online will continue to grow.

Expedia, Travelocity and other agencies are up against stiff competition. With each of the majors building their own portals, the best deals will often be found by using the carriers site.

Prices of airline stocks have stalled after a major run. One risk being discounted is the possiblility that fuel prices are down for the traditional winter slow-down. Should prices hold at current levels, the stocks are under-valued by 30% or more. The market is clearly concerned that crude will return to the low $60 range. The irony is that the price of the integrated oil companies such as XOM appears to be discounting $40 oil.

The markets focus on oil prices is simply over-done. The airlines will make money even at $60 because they will gradually adjust fares to the price. The oil companies will make money at $40 as oil is a very profitable business at $40. I prefer the airlines but stocks are the place to be.

The bottom line is that investors are still risk averse. They continue to hide a lot of money in short-term cash holdings; the fear of loss is still the major emotion driving the market. It will take a solid break-out for greed to takeover.

Earnings have made a peak like none seen since 1965! The indications are that earnings will continue to grow. A huge number of companies are currently in the position that they can buy back shares to increase earnings. Many will issue corporate bonds to reduce shares. The operating leverage for most businesses is currently such that profits are easy to come-by. The process of "leaning-out" is into the 4th or 5th year for many businesses.

On a nominal basis and percentage basis, the airlines have probably done as much as any other industry. Auto, auto-parts and pharmaceuticals are in the recent news for their efforts. Unions are not likely to push up wages or cost in this environment. Airlines will continue to lower operating costs at a time when revenues are soaring; good times ahead!