 Weekly Airline Archive
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This Week in Airlines
by Holly Hegeman (TMF
Wings)
Dallas, TX (June 22, 1997) -- Foolish readers, pardon me while I recover from a week spent back in my former environs -- the Big Apple. Funny, for some reason, airline press releases and e-mails just don't have the same impact when one is in New York. Think it has something to do with the number of greater and far more interesting distractions? Could be. Could be. But, before I forget, my compliments to DELTA AIR LINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAL)") else Response.Write("(NYSE: DAL)") end if %>. Yes, that same Delta that I have been known to squawk about from time to time. (As if I don't squawk about them all!)
Well, from a passenger perspective -- I had two great flights. No complaints. Good service, on-time performance, and great food. However, from an investor perspective --since they served me two great hot meals, does this now mean their margins will shrink as a result?
Only time will tell. (Yes, see this IS a nutty business! Just depends on your perspective now doesn't it?)
TMF Wings' Market Watch
Is this a good time to invest in the airline sector? What is a person to do? Let's take a look at some of the market indicators that affect this industry in particular and see if we can extrapolate some tea leaf readings from them.
First, let's look at the threat of higher interest rates. This usually sends the fear of whatever into airline investors. Well, on this one, we can put a "not applicable". The market seems to think (at least for today!) that inflation is not about to run rampant, so that is a non-issue right now.
How about oil prices? As we know, if oil prices go up, the natural assumption is that aviation fuel will follow. Well, oil prices are still trending downward. Great.
Now, let's look at earnings' forecasts. Here we do not have good news. Why? Demand is flattening out, and the implementation of the ticket tax in the second quarter of 1997, versus no tax in 1996. Translation? Many airlines have informed analysts that they are not going to make expected second-quarter figures, and in many cases, brokerages have now downgraded stocks as a result.
What antics are the government up to that could affect the bottom lines of our Motley Flyers?
Several.
The wrangling over the current budget financing bill directly affects the airlines. As we discussed last week, proposed changes in the way the ticket tax is implemented, in addition to new higher taxes on international flights will mean a bigger tax hit to the airlines. In addition, the proposed changes in the taxation of carriers would tend to affect smaller carriers harder. SOUTHWEST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %> went public this past week with advertising alerting the general public to this issue.
Friday, June 13, the House Ways and Means Committee approved a package that would lower the federal passenger-ticket tax to 7.5% from 10%, but impose a fee starting at $2 a passenger for every takeoff involved in a trip. The House plan also would raise international arrival and departure fees.
The House package would increase the U.S. airline industry's tax burden by an estimated $400 million a year in the first year, fiscal 1998, and by an additional $100 million a year thereafter, according to Samuel Buttrick, airline analyst with PaineWebber.
Meanwhile, the Senate Finance Committee was expected to vote this week on its own version of the bill, which calls for retaining the 10% tax on domestic travel and adding a 10% tax on the domestic leg of international flights. Buttrick estimated the Senate proposal would increase U.S. airline taxes by $1 billion in the first year.
Then there is the cost to install the new mandated fire-detection and extinguishing equipment in aircraft cargo holds. This measure, which is a direct outgrowth of the VALUJET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VJET)") else Response.Write("(Nasdaq: VJET)") end if %> crash last year, will also cost the carriers money.
So, in terms of governmental antics that could possibly cost the airlines more money going forward, there are some serious rumblings right now.
Then there is the yearly cyclical nature of airline profits and earnings, which institutional investors tend to follow, as we have discussed in the past. If you look at historical trends, now is not the best time to purchase an airline stock--historically speaking.
So, what is the potential airline investor to do? Personally, I think I would find the closest deck chair, (preferably adjacent to a warm body of water), hook up the small TV with CNBC, get that phone line and modem connected to all your favorite investment sites, (including www.fool.com) and just kinda try and stay cool for the time being.
The market closed this past week with another record setting performance, but remember, this is the market in general and not the airline sector. The Dow closed Friday up 19.45 points at 7,796.51, off its session high of 7,834. But the close eclipsed the previous record of 7,782.04 set last Friday. For the week, the index rose 14.47 points.
In addition, Friday was triple-witching day --t he day when individual and index options and index futures come home to roost. While triple-witching days are usually always heavy in volume, this one was particularly so, as about 652.7 million shares changed hands on the New York Stock Exchange--its third busiest day ever.
Our Motley Flyers, on the whole, had a bad week, with most showing a drop on the week. There were a few notable exceptions however. FRONTIER AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRNT)") else Response.Write("(Nasdaq: FRNT)") end if %> posted the highest gain on the week, up 10% to close at $4 1/8, as investors are betting that a proposed merger with WESTERN PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WPAC)") else Response.Write("(Nasdaq: WPAC)") end if %> will become a reality sooner than later. AMTRAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMTR)") else Response.Write("(Nasdaq: AMTR)") end if %>, which hired John Tague, former CEO of VANGUARD AIRLINES (OTC: VNGD) back to the fold as CEO, posted a 6% gain to close at $8 1/2. Other carriers that posted gains on the week included FEDERAL EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %> HAWAIIAN AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HA)") else Response.Write("(AMEX: HA)") end if %> ATLANTIC SOUTHEAST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASAI)") else Response.Write("(Nasdaq: ASAI)") end if %> , ALASKA AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %> , AIRBORNE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABF)") else Response.Write("(NYSE: ABF)") end if %>, COMAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMR)") else Response.Write("(Nasdaq: COMR)") end if %>, SOUTHWEST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %> and CONTINENTAL AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAI/B)") else Response.Write("(NYSE: CAI/B)") end if %>.
Analyst Downgrades, Upgrades
While most airlines did not have a good week last week, three in particular suffered after Goldman Sachs downgraded the stocks on Thursday, according to market sources.
Goldman Sachs cut Delta Airlines to a "recommended-list buy" from a "priority-list buy," AMR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %>, parent of American Airlines, was cut to "market outperform" from "recommended list buy," and UAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAL)") else Response.Write("(NYSE: UAL)") end if %>, parent of United Airlines, was cut to "market perform" from "market outperform."
Weekly Performance, Rank by Percent Change over Previous Week
Closing Price Closing Price Percent Symbol 06/13/97 06/20/97 Change FRNT 3 3/4 4 1/8 10% AMTR 8 8 1/2 6% KLM 29 3/8 30 7/8 5% FDX 56 7/8 59 1/2 5% HA 4 9/16 4 3/4 4% ASAI 25 3/4 26 3/4 4% ALK 24 1/4 25 1/8 4% ABF 37 7/8 39 1/8 3% COMR 25 1/2 26 2% LUV 26 26 1/2 2% CAIB 34 1/8 34 3/4 2% JAPNY 8 3/4 8 7/8 1% CEA 25 5/8 25 3/8 -1% U 35 7/8 35 1/2 -1% UAL 75 74 1/8 -1% AMR 96 94 7/8 -1% DAL 89 1/2 88 1/4 -1% WLDA 8 7 7/8 -2% RENO 7 7/16 7 5/16 -2% MAIR 14 1/2 14 1/8 -3% AIRT 4 1/2 4 3/8 -3% PAA 8 5/16 8 1/16 -3% TOWR 3 3/8 3 1/4 -4% AWA 15 1/2 14 7/8 -4% VNGD 1 3/8 1 9/29 -5% NWAC 36 3/4 35 -5% BAB 120 7/8 114 7/8 -5% SKYW 16 3/4 15 7/8 -5% VJET 7 5/8 7 7/32 -5% ATLS 35 33 1/8 -5% ACAI 16 1/4 15 1/4 -6% WPAC 5 7/8 5 1/2 -6% AAIR 5 9/16 5 1/8 -8% MEH 29 1/2 26 7/8 -9% TWA 9 1/16 8 1/4 -9% MESA 5 9/32 4 3/4 -10%
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Have a great week everyone.
Holly Hegeman
TMF [email protected]
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