Visually Compelling TA

Though airlines have been losing money for years, present circumstances provide three catalysts enticing me to put one-third of my SLO 2 portfolio into this industry.

Many experts are forecasting lower oil prices for 2008. I agree and therefore anticipate this lowering of airlines' primary variable cost will result in higher profit margins. This is one catalyst that will propel airline stock prices upward.

Another catalyst is increased demand for air travel and its attendant pricing power. The flying public is well aware full planes are the norm and the airlines reported load factors are rising. In the face of such demand, fares are continuously creeping upward. The airlines' confidence is also visible is new emerging add-on prices. United Airlines, for example, expects to net $100M annually by charging for checked baggage. With 117 million shares outstanding, this practice alone will be an earnings bump of 85 cents per share.

The third catalyst is airline mergers. I anticipate acquisitions to take place at a manic pace as companies jostle for advantageous positions in the new emerging industry landscape. Consolidation will likely lead to reduced routes further amplifying the aforementioned pricing power.

Continental (CAL) and Northwest (NWA) are particularly interesting due to their healthy international routes. I've bought three units each of CAL and NWA. I've bought two units each of United (UAUA) due to its accelerated earnings potential. I've also bought two units of Copa Holdings (CPA) due to its rapidly increasing passenger load.

Comments: View Comments |  Sunday February 17, 2008