Saturday, June 10, 2006


June 9, several other major airlines matched fare increases and a new round of increases were started by AMR and NWAC on international flights.

Folks, airline fares are going up by more than the increase in fuel costs. Five to ten dollars per seat is a lot of money when you multiply hundreds of seats times thousands of planes times two to four flights per day times 365 days per year. Debt is being paid down. Balance sheets are being restored to health. A couple of days ago, Fitch upgraded AMR debt. AMR raised 400 million by selling more stock. I hope CAL does not issue more stock. Cash flows are improving rapidly. Soon, airlines will find that they can refinance debt at lower rates; further lowering costs and improving cash flow more.

The BIG BOOM in traffic growth is now about two years old. Last June, CAL set a record load factor. The load factor is not likely to go up much year over year this year because all the planes were full last year. However, customers are now resigned to fare increases. The airlines are staggering $5 to $10 rate increases in different markets every few weeks. They check to see that planes are still flying full and then hit the next market.

Many of you have read this story from me more than once but many of you are still skeptical. A lot of money flowed into accounts when CAL hit $30 a couple of weeks back but now with the price at $25 little new money is arriving. It is hard to invest when prices are down, human nature; the smart investor moves in aggressively when stocks are down.

I am afraid CAL is going to get a take over offer before the stock hits $35. If it does, the company will go out at $45 or so. If it can stay independent for the rest of the year, I believe it will trade much higher.

Now that the terrorist have been infiltrated, it is possible that geo-political progress will move more quickly. If the market gets a sniff that a deal is done with Iran, all bets are off. Oil could come down $25 a barrel in a few weeks and legacy airlines could double.