Jan 21, 2016 @ 07:15 AM

The Tumble Of Airline Share Prices Has Even Zoolander Scratching His Spikey Head

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You’d have to be more dense than Derek Zoolander not to see the irony of US airlines’ stock prices falling hard this month along with the rest of the world’s publicly traded companies.

Historically airlines have been, with only a few, occasional exceptions, horrible investments for anyone other than aggressive stock traders trying to make well-timed bets on the wild seasonal swings in airline share prices. As an industry, the big US carriers combined to report staggering net losses totaling $50.36 billion from 1977 through 2010. Even with four straight profitable years between 2011 through 2014, the group was still sitting on $30 billion net loss over 37 years.

But now, now that they’re making not just respectable but really impressive profits – Delta reported Tuesday that it netted $4.15 billion in 2015 (vs. $659 million in 2014) and its CEO, Richard Anderson, is openly predicting the company 2016 operating margin will be in the previously unimaginable 18% to 20% range – their share prices are tumbling. And they’re tumbling despite the unprecedented drop in the price of fuel, which historically has been their biggest single cost item.

But the world’s second-largest carrier has seen its share price fall 12.5% from its recent high on Christmas Eve to just $45.69 at the close of yesterday’s wild ride on the New York Stock Exchange. Other big airlines are poised to report extraordinary – for airlines – annual profits, even as their share prices tumble. Southwest, the industry’s best performing stock for most of its 40+ years of existence, has lost 20% of its market value since its high in early December. American, the world’s largest airline, is about 30% from its share price high last March. And No. 3 United is off nearly 40% from its 52-week high nearly 12 months ago.

Jet fuel, is selling at around 93 cents a gallon today, 85% lower than what it cost at its peak in early 2008 and half of what it selling for just 10 months ago. And given the rule-of-thumb calculation that every penny saved on fuel price equals about $180 million in annual fuel costs, it’s easy to see why carriers are expected to earn potentially larger – maybe even much larger – profits than the record profits they have begun reporting from 2015.

So why are airline shares falling along with the rest of the market?

The only plausible explanation is that airline stocks are been swept downstream by the flood of worries and negative sentiments among investors and institutions.
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To be sure, airlines still have their problems. Most still have a ways to go to finish the repair work on balance sheets that were all-but destroyed over the last 14 years of industry chaos. And despite the drop in fuel prices and commendable restraint on the growth of capacity, especially in the domestic market where operating profitability is remains a challenge, there is a disturbing sign of weakening consumer demand.

Forrás: http://www.forbes.com