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A synopsis of today's Industry Outlook is presented below. The full article can be read at http://at.zacks.com/?id=2678.
Though almost all carriers are expected to post negative earnings in 2009, we favor Southwest Airlines (NYSE: LUV), as it is the most successful low cost carrier in the U.S. Southwest has maintained continued profitability for the last 30 years -- even during periods of industry downturns -- mainly due to its strong fuel hedging strategies. Low-cost airlines are expected to get a higher share of revenue in the future, which will see structural changes in the industry and consolidation as a result of competitive pressures.
Another carrier, JetBlue Airways Corporation (Nasdaq: JBLU), is projected to fare better than the average major player during the 2009 recession due to the competitive nature of the product and an increase in demand for low-cost services. The company has been able to increase its revenues ahead of the industry average for the past four years. Though JetBlue recorded losses in 2008, it is trying to sustain its profitability by downsizing its workforce and canceling routes.
As a means of recovering lost revenues, some airlines have been increasingly using higher fees. Additional charges have focused on forcing passengers to pay more to check in additional baggage, which can cost up to $50 each way. This has led to a lack of pricing transparency in the industry. United Airlines (Nasdaq: UAUA), Delta Airlines (NYSE: DAL | Quote | Chart | News | PowerRating) and American Airlines (NYSE: AMR | Quote | Chart | News | PowerRating) are some of the airlines whose reputation has suffered due to this. Moreover, volatility in oil prices in times of falling demand has taken a toll on these air carriers.
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The performance of the Zacks Rank portfolios shown above for annual and year-to-date periods are the linked monthly total returns (price changes + dividends) of equal weighted hypothetical portfolios, consisting of those stocks with the indicated Zacks Rank, assuming monthly rebalancing and zero transaction costs. These are not the returns of actual portfolios. The hypothetical portfolios were created at the beginning of each month from Jan 1988 forward based on the values of the Zacks Rank available to Zacks' clients before the beginning of each month.
The portfolios created monthly from 1988 through September 2006 exclude ADRS and are comprised of stocks that have the indicated Zacks Rank and were covered by at least two analysts at the time of the stocks inclusion in the portfolio. Starting in October 2006 and going forward, the portfolios are comprised of all stocks with the indicated Zacks Rank and do not exclude ADRs, which is more reflective of the list of stocks that customers will find on the Zacks web sites. 2007 returns are for the period of Jan 1 -- Jun 30, 2007. These performance numbers have been audited from 1995 through 2003 by Autschuler Melovan, a division of American Express Financial.
SOURCE: Zacks.com
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