Options traders are skeptical

[usa1]

US Airways Group Inc. (LCC) options traders are skeptical the nation’s fifth-largest carrier will avoid a global economic slowdown, driving up insurance against declines to the highest levels since 2007.

http://www.bloomberg.com/news/2011-09-19/us-airways-puts-highest-since-2007-show-most-pessimism-options.html?cmpid=yhoo

 

[FWAAA]

Rather telling part of the article:

Earnings before interest, tax, depreciation and amortization at US Airways amounted to 6.9 percent of revenue in the second quarter, below the 9.6 percent average for 14 carriers tracked by Bloomberg Industries and less than every company except AMR and Hawaiian Holdings Inc. US Airways, the smallest of the nation’s major full-fare carriers, trades for 4.5 times earnings from the past year, half the valuation for the Bloomberg U.S. Airlines Index.

“There’s a perception that US Airways is one of the financially weaker companies,” Jim Corridore, an equity analyst at S&P in New York, said in a phone interview yesterday. “They don’t have a merger partner lined up like United did or Delta did. They clearly don’t have as strong an international route network as companies like American or Delta or United.”

It's a good thing for Doug Parker that he's had so many of the pilots willing to work for their Very Low Wages for so many years now because of their objection to the arbitrator's decision in their seniority integration dispute. Without those low pilot rates, US might very well be at the bottom instead of third from the bottom.

 

[BoeingBoy]

An interesting article although one must remember that options traders are almost by definition short term traders and not looking that far down the road. But don't confuse that with any idea that I think US is some kind of sleeping giant that will take over the world when it wakes up - I certainly don't believe that for an instant.

Jim

 

[cynic]

An interesting article although one must remember that options traders are almost by definition short term traders and not looking that far down the road. But don't confuse that with any idea that I think US is some kind of sleeping giant that will take over the world when it wakes up - I certainly don't believe that for an instant.

Jim

People only care about negative angles on this site and in this company.

 

[WorldTraveler]

but to be fair, Doug Parker has never pulled punches about US' weakness... I still believe the man understands the business of the airline industry far better than alot of people give him credit. He has been a long-term advocate for consolidation and has tried to rationalize capacity down to what is sustainable, even if it has caused US to reduce its presence significantly in key markets because it couldn't successfully compete there.
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The problem is that absent any real structural solutions, US turns to what it can most easily do - push for low labor rates and cut positions - and thus customer service.
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I'm not sure this comparison is entirely accurate because it looks at the network carriers in isolation... the reality is that US' future is far more tied to how successful US is w/ respect to low fare carriers - and PIT has been a success in that regard - as well as being able to maintain its position as a niche network carrier. That is probably not viable long term but it is a valid short term strategy that US is doing well enough at that Wall Street overall has run US' stock up more over the past week plus than just about any other carrier.
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Airline stocks are almost always seen as short term plays... in that regard, US is creating strategy that reflects the need for short-term success and survival. In the airline industry, tomorrow is always a long ways off - if not an eternity.

 

[BoeingBoy]

That is probably not viable long term but it is a valid short term strategy that US is doing well enough at that Wall Street overall has run US' stock up more over the past week plus than just about any other carrier.

There's the old saying that there are liars, damn liars, and statisticians...a 50% gain sounds great but a stock that drops from $100 to $10 but then gains 50% to $15 is still down 85%.

US has been down more than just about any other carrier, so it's not surprising that it's up more lately, but it's still 51% below it's 52 week high - not tremendously better than AA which is down 61%. DL is down 43% from the 52 week high (not tremendously better than US) while UA is down only 31%. WN is down 52% from it's 52 week high while B6 is also down 52%. In other words, AA is the worst, US/WN/B6 are a group, DL is 2nd best with UA leading the pack. Those are based on the stock prices when I checked each and rounded to the nearest 1% so most likely will change some by the close of the market.

Of course, when one of these stock hit it's 52 week high and how the price changed since will influence how much it's down (or up) going forward. A stock that's had a general decline since last October will see it's percentage loss drop slowly starting in this October (assume stock price stays relatively constant going forward) while a stock that kept most of it's value till this past summer then fell off a cliff will see little decline in the comparison till next summer then the % loss comparison drop off a cliff (also assuming basically flat stock price going forward). The latter pretty much describes US and AA. They set their current 52 Week highs within a week or so of each other around 11/1/2011 and lost between 15 and 20% through this summer then fell off a cliff. So they won't see a comparison to the "falling off a cliff" period till next summer if their stock price stays relatively constant till then.

Jim

 

[UPNAWAY]

The perceived weakness also gives one an opportunity. That is a big part of when airline stocks do well US is usually the leader on a % basis.
So as long as BK isn't a realistic fear, LCC stock when beaten down as it is now is probably the best airline investment out there.

Not that any airlines are good investments, but money can be made in the near to middle term.

 

[BoeingBoy]

but money can be made in the near to middle term.

Depending on what you mean by near to middle term, I'm not so sure unless you can trade in pretty large blocks of stock (preferably multi-thousand shares). IATA is forecasting traffic to be down next year, which is really nothing but an educated guess, but it could well be a couple of years or longer before any significant increase in share prices.

Jim

 

[WorldTraveler]

Jim,
your year over year comparisons are accurate but remember also that UA's merger with CO has not reached the two year mark - which means they have not had two full years of year over year comparisons.
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also, it is easier to get a larger percentage change in a small priced stock. LCC is the 2nd lowest priced network airline stock in absolute dollars front of AMR - thus large percentage swings are more common. It also means that it is easy to attract small investors.
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Given that airline stocks are short-term plays, the key is seeing stabilitiy in the stock for as little as 6 months....given that the industry is cutting capacity across the board and there are no major competitive threats to US on the near term horizon, it is possible that LCC could appeciate.
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I would also expect a boost to LCC and DAL when the slot deal is finally approved and plans for how the "new" slots will be used are more clear.

 

[BoeingBoy]

Jim,
your year over year comparisons are accurate

That's all you needed to say. The rest is what you should have said when you were claiming that US was among the top of it's peers. Take a snapshot of only a week of certain market data and by choosing the week you can make the picture show what you want. Companies don't succeed or fail depending on a week of market action - longer term performance is more important and the 52 week numbers are easy to find.

Jim