Originally Posted by nsx
Well, I did say I was only halfway hedged. My reasoning is as follows: (a) airfares must increase in the near future due to finite cash reserves of the majors, (b) these increases must be sufficient to cover the cost increase, (c) the fare increases will more than cover WN's cost increase, which will be less than that of the other majors over the next few years due to fuel hedging, and (d) therefore WN's profits will increase as fares reach the necessary levels. Higher profits mean a higher stock price, obviously.
Because fares have remained at loss-generating levels for years, many people have forgotten that this is not sustainable. Kinda like the real estate bubble. There will be an adjustment to reality, and WN will benefit from it. April 22 was the first sign that WN was acting aggressively to raise fares, and that was the signal to move, IMHO.
You're scenario is certainly plausible, but there's still a few holes.
Simple supply/demand models would say if there a price increase, then demand will drop as well (maybe more teleconferences? fewer vacations?) and there will be no increase in profit. Of course the real world isn't that simple...
Also, you would think increased price of key products would translate to profit, but check out XOM (Exxon Mobil). Their key product has nearly doubled in price in the last year or so, but stock price is only up 15-20% over the same period...
I'm not saying your theory is wrong, but I wouldn't bet my whole retirement on it... However, making an investment in a product that you are familiar with and also has a strong brand and a unique niche can't be too bad an idea; it's the same strategy that's made Warren Buffett a multi-billionaire.