Good times as a sell signal

Good times for the airline industry, unlike long-haul flights in coach, seem to be over before you know it. The same goes for bull markets in the sector; the time to sell is often when profit has leaped and the future appears brightest.

January may have been such a time. Passenger traffic was surging, fuel costs were plummeting - and airline stocks fell off a cliff. Parent companies of the leading U.S. carriers have lost 30 percent to 50 percent of their value, and while the situation is better for some airlines elsewhere, it certainly is not great.

Singapore Airlines and Air France-KLM are up a bit, but Cathay Pacific and Lufthansa are down about 10 percent from their peaks and British Airways and Alitalia are off more than 25 percent.

The global malaise is a result of several factors, extant or anticipated, that could raise costs and lower revenues. One of the biggest drags lately has been the cost of fuel, which accounts for one-fourth or more of operating expenses. An index of jet fuel prices passed 230 this month after dipping as low as 190 in January. Another potential source of higher expenses is union demands for higher wages and benefits as compensation for cuts accepted during the previous trough.

"As soon as you get some breathing room, you're going to get hit internally or externally," said Brian Nelson, who follows airlines for the research firm Morningstar. "If these carriers are still above water when big contracts come up for renewal, the unions could win a lot of concessions."

Passenger traffic remains robust, but fares are on their way down because airlines are adding to their fleets. They could always sell some planes or cancel orders, but Jamie Baker, an analyst at JPMorgan, is not betting on it. "Investors hoping for the next big chunk of capacity relief are likely to be disappointed," he wrote in a note to clients.

Baker expressed his own disappointment by downgrading many of the stocks he follows. He moved AMR, the parent of American, and US Airways from overweight to neutral and UAL, the parent of United, and Alaska Airlines all the way from overweight to underweight. Continental and JetBlue went from neutral to underweight.

Andrew Light at Citigroup is more hopeful. He foresees earnings growth this year and next as revenues continue to rise, albeit as a slower rate than in the recent past. Light has buy ratings on AMR and Southwest and is neutral on JetBlue.

Budget operators like JetBlue and Southwest remain a source of woe for the big airlines, but they can hardly brag about the performance of their own shares. Southwest is down about 10 percent from its winter peak, JetBlue has fallen nearly 40 percent, and their European counterparts Ryanair and EasyJet have lost about 60 percent and 30 percent, respectively.

The full of this article's can be read on the source at: International Herald Tribune