But Analysts Say Upward Trend May Have Crested
As we near the end of domestic airlines' second profitable
year in a row -- after five years losing $35 billion --
analysts believe that may be as good as it gets.
The general opinion is for profits to fall in 2008 from 2007
among several of the major carriers. Fuel costs are high, despite a
$1.95 a barrel drop on Friday. At $88.28 a barrel, jet fuel is the
number one cost to airlines, along with labor, according to Thomson
But, the US economy may run into a slump... and travel tends to
be stronger creating better profits when the economy is strong,
says JPMorgan analyst Jamie Baker.
"Tepid demand has long been forecast, though it still hurts to
see," he said. "We're hard pressed to find anyone that could
logically argue for anything but softer air travel trends in 2008
To combat a downturn, airlines are cutting capacity, and even
dropping routes -- hoping fewer seats will allow them to boost
Travelers have shown some resilience. Analyst Ray Neidl doesn't
see airline shares rising unless the industry can push through fare
increases, crude oil prices ease or airlines start merging. None of
these is assured, according to the Calyon Securities analyst.
Goldman Sachs analyst Robert Barry cut his view on the sector to
"cautious" from "neutral."
Carriers with international routes are favored by analysts for
United Airlines' parent UAL Corp. (UAUA), which Barry rates
"buy," says such routes face less competition from low-cost
All airline shares got a boost last week, after UAL approved a
$250 million special distribution to shareholders.