|Quoting WorldTraveler (Thread starter):
The nation's legacy airlines, previously cast aside by some investors, are suddenly hot again.
So far this earnings season, it's been the old-line hub carriers churning out strong profit reports and topping analysts' expectations. Low-cost competitors, meanwhile, have fallen short of Wall Street forecasts or announced scaled-back growth plans.
Even if we accept this as generally true, I think the problem here is that it looks like we're nearing the end of a boomin business cycle. At this point (at least based on the few decades since deregulation) it seems like the legacies should be racking up billions of dollars in profits in order to make it through the coming slowdown. Instead, they're ekeing out relatively narrow profits on less-than-stellar margins.
Now, that said, I think there's reason to think that this partcular cycle might be different. The majority of the legacies have been able to pare costs either in or out of bankruptcy, and there haven't been any fat labor contracts given away in the law few years. At the moment, fuel costs look manageable, and may even improve significantly over the next year or two. And none of the legacies have recently placed big orders for jets that are due in the next couple of years. So it would seem their current business models are more sustainable than those that existed at the height of previous business cycles.
What all this means, I have no idea, other than that I won't be putting any of my money into the airline industry anytime soon -- though I sure wish I had left money in AMR after I bought it at $11 a couple years ago.
[Edited 2006-10-26 19:41:00]
New airplanes, new employees, low fares, all touchy-feely ... all of them are losers. -Gordon Bethune