Analyst Says Lower Fuel Prices, Continuing Fees Will Mean Black Ink

Airlines have seen their stock prices take a pounding lately, as they've slashed capacity and introduced a host of new fees on travelers... on the premise that it was required to meet skyrocketing fuel costs.

But now that oil has dropped from its high of $147 per barrel to below $100, what happens next? One analyst says the industry could produce record operating profits next year.

You read that right. The Fort Worth Star Telegram cites a report from Jamie Baker of JP Morgan, suggesting jet fuel prices may go even lower in 2009. Given the airlines' deep cost-cutting measures and reductions in capacity, combined with revenue from all those new fees, airline profits could indeed rebound strongly.

"While far from assured, the potential for record 2009 profits is likely to strike many by surprise," Baker said. "We figured we might as well be the first to point out the math."

Indeed, it appears others are doing the math, as well. After an ugly day on the stock markets Wednesday, airline stocks were mixed at Thursday's close.

A pleasant surprise was United, which led gainers with a 3 percent climb for the day... despite Wednesday's announcement that it will write off $225-million to cover fuel hedges which are now more expensive than current prices.

Even if economic realities fail to live up to Baker's admittedly optimistic prognostications, this whole affair would seem to support one inevitable fact about the airline industry as a whole.

Namely... that the airline industry is CYCLICAL. What goes up eventually comes down... and vice-versa. The sooner airline execs learn to plan ahead for that eventuality... the better off we'll all be.

FMI: www.united.com, www.jpmorgan.com