Thursday, November 10, 2005


So far, today is another one of those better than 3% days. The reason is the action in AMR, CAL and LCC. Several of my friends and family are riding a "Ken Fisher Bucking Bronco". The ride took a tough turn when mostly small positions in DAL and NWAC got hammered. All my friends and family sold out of those losers and doubled up on CAL, AMR or LCC. Several of the accounts are now on net new highs.

The airline business is truly one of the bucking broncos. The industry is one of extremely high financial leverage and extremely high operating leverage. This means the down turns are particularly rough and the up turns are mind boggling.

Chad Brand (Peridot Capitalist) has made excellent points about the possibility that LCC could turn out to be the next K-Mart--Sears. He is not representing that it will be but you have to give him credit for the idea.

I have made my points about the price of oil and the price of first class and business class seats many times. I will not belabor these points here again save one.

The thing most people miss about airlines is that they only make money during economic expansions which is when business demand is high. During recessions and during the following consumer lead recoveries, airlines do not make money. In other words, consumers shop and get good deals when plenty of excess capacity exist. Then when a world wide business expansion begins, business travelers pay what the market will bear. Consumers who travel during this time pay much more for their discounted coach seats but they are not the driving force of profits.

US Airways traded in the $4 to $6 range for some months during the early 1990's before taking off to $65 or more when the business expansion was fully under way. Using Chads numbers, the new K-Mart has appreciated 700%. The "bounce" in US Air in the 1990's was 1,600%. Instead of saying LCC may be the next K-Mart, I had rather say that it is still the old US Air!