USA320Pilot
Veteran
- May 18, 2003
- 8,175
- 1,539
U.S. Airlines 2007 Estimates Raised; For Many, Margins Expected To Reach New Highs – JP Morgan Research Report
· Time to genuflect – Like Autumn 2005, it is once again time to genuflect at oil’s alter. But this year, it’s declining energy prices that are expected to drive significant earnings growth. We have substantially raised our 2007 forecasts to reflect $1.95 jet kero, a potentially conservative forecast in light of Wednesday’s close of $1.71 (for Gulf Coast spot, with carrier all-in likely closer to $1.81).
· There’s no evidence demand weakness is uniform – Carriers reporting demand weakness largely confined to out-and-back and single-night itineraries, suggesting security and toiletries remain a meaningful travel deterrent. Further evidence: weekly load factor data shows improvement in all regions, save for short-haul Express markets. If overall demand trends were truly suffering, this wouldn’t be the case, in our view.
· TSA and the industry likely to compromise – Carriers pressing hard for trial-size cosmetics and/or airside sale of banned liquids. TSA likely to compromise in coming weeks. If so, don't fear a sale and/or round of mileage promotions as carriers sound the “all clear".
· Industry discipline not likely to evaporate over night – Higher fuel forced discipline on the industry, so in fairness declining fuel may at some point result in capacity creep, fare decreases at LUV, and mutinous labor relations as profits reach new highs for some. Hey, these will be high grade problems to have given anticipated equity performance, and we’ll deal with them when necessary. In the meantime, risk/reward in most names extremely compelling, in our view, given emerging 2007 valuations. No change to ratings, though LCC, AMR & CAL remain our favored proxies for industry profit growth.
Click here for the complete report.
Regards,
USA320Pilot
· Time to genuflect – Like Autumn 2005, it is once again time to genuflect at oil’s alter. But this year, it’s declining energy prices that are expected to drive significant earnings growth. We have substantially raised our 2007 forecasts to reflect $1.95 jet kero, a potentially conservative forecast in light of Wednesday’s close of $1.71 (for Gulf Coast spot, with carrier all-in likely closer to $1.81).
· There’s no evidence demand weakness is uniform – Carriers reporting demand weakness largely confined to out-and-back and single-night itineraries, suggesting security and toiletries remain a meaningful travel deterrent. Further evidence: weekly load factor data shows improvement in all regions, save for short-haul Express markets. If overall demand trends were truly suffering, this wouldn’t be the case, in our view.
· TSA and the industry likely to compromise – Carriers pressing hard for trial-size cosmetics and/or airside sale of banned liquids. TSA likely to compromise in coming weeks. If so, don't fear a sale and/or round of mileage promotions as carriers sound the “all clear".
· Industry discipline not likely to evaporate over night – Higher fuel forced discipline on the industry, so in fairness declining fuel may at some point result in capacity creep, fare decreases at LUV, and mutinous labor relations as profits reach new highs for some. Hey, these will be high grade problems to have given anticipated equity performance, and we’ll deal with them when necessary. In the meantime, risk/reward in most names extremely compelling, in our view, given emerging 2007 valuations. No change to ratings, though LCC, AMR & CAL remain our favored proxies for industry profit growth.
Click here for the complete report.
Regards,
USA320Pilot
