Are Airlines at Last Getting Smart?
On the American Airlines (AMR) call, CEO Gerard Arpey noted that the carrier has arranged about $5 billion of new financing in recent weeks. "These are good developments to protect all of our stakeholders, but we are under no illusions that this represents a long term solution for our business," Arpey said. "Ultimately success will be measured by our ability to drive profits."
Like American, most carriers raised capital during the quarter, another positive sign showing an industry that, having learned the harsh lessons of the past decade, is now conditioned to prepare in advance for whatever crisis may occur.
In the years following the Sept. 11 terrorist attacks, which contributed to a falloff in traffic that began early in 2001, airlines addressed their high costs through a series of bankruptcies, cutting both capacity and costs.
For decades, the airline industry had been a place where everybody -- aircraft makers, airports, consultants, employees, executives, investment bankers and other vendors -- got rich. Everybody, that is, except for investors. How can it be that airport bonds generally have high ratings, while junk ratings accrue to the airlines ensuring that the bonds get paid off?Following the bankruptcies, airlines reported two consecutive years of profits, earning about $8.6 billion in 2006 and 2007. This was an immensely positive achievement only by the standards of an industry that preceded it with losses of $36 billion over five years, according to Air Transport Association figures. The profits might have continued for a third year, were it not for an extraordinary run-up in fuel prices. The resulting losses totaled $9.5 billion in 2008, leading to the capacity cuts and new fees. And today, the industry seems prepared for the next crisis, which could well be a return of high fuel prices.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV