iahphx

Sorry, but I can assure you Wall St. is having NO PROBLEM with the new UAL. If fuel prices ever stabilize, UAL stock will do extremely well at this price level (as will lots of other airline stocks that are trading at similar price to earnings multiples).

The problem investors are having (and I can attest to this from personal experience as an investor) is that oil has become a substitute "currency" for Wall Street, kind of the way gold is a substitute currency. The Fed's insistence on keeping interest rates near zero has created a bizarro investment climate where "financialized" oil dominates the market for real world oil (which is why there is currently talk of imposing position limits on oil speculators). So, basically, oil trades at the whim of Wall Street -- usually up -- with little regard to real oil supply and demand.

This volatility and upward pressure puts enormous financial pressure on airlines, even though they are doing a great job of limiting supply and passing along most of the fuel increases. That said, high and volatile oil prices discourage folks from investing in airlines. If oil prices become more predictable, airline stocks -- including UAL -- will trade at higher multiples.

star_world

I think they meant one of the QUIETEST times of the year Easy to mix up!

AlohaDaveKennedy

Ouch - I would really love to help the airlines by buying their stock. How many frequent flyer miles do I get per share?

sfozrhfco

Oil already is predictable. It has been steadily trending up for some time now. Not coming up with a clear strategy as to how to deal with higher commodity and labor costs and ways to raise additional revenue that exceeds by a healthy margin the increase in costs, is the problem for airlines. That will not change any time soon. If offering a superior product that enough people are going to pay a premium for doesn't work, some other magic must be conjured up to make a profit in good times and bad. At nearly any level, airline stocks are a bad long term investment.

mahanaloa

You are right!

Tell you what I'll buy all your shares of UAL @ $12 and we'll call it even.

AlohaDaveKennedy

Hey, what's wrong with a bizarro investment climate? I kinda like it. Bring back the US dollar coins and lets get back to some real full tilt bizzaro investing!

pcharles

I do not agree.

Fuel costs have been top of the airline mind for years. Fuel price volitility has played a key roled in airline decisions on everything from raising fares to cutting routes to adding baggage fees. Fuel for airlines is the #1 cost, overtaking labor costs years ago, and the concern has been rising. Jet fuel has averaged $3.15 a gallon this year, triple the level from 2000-2005. Fuel prices make up about 35% of operating costs, obviously the most volatile cost. Airlines are better prepared than in 2008 when prices last spiked before subsiding with the recession. Airlines have said publicly that they now plan schedules UNDER THE ASSUMPTION THAT FUEL PRICES WILL REMAIN HISTORICALLY HIGH. Last year (amazingly enough), airlines (historically, according to their numbers) marked the first time we have fully recovered the run-up in fuel price.

And USair who? Please, can we please keep the soon-to-be-forgotten out of the equation?

jkburns1

You can buy up at a discounted rate right now but rumor has it I'm afraid if you're a preferred shareholder the buyup option is not available at the same rate.

84fiero

Yes, obviously Wall Street has been paying close attention to the high levels of dissatisfaction on the FlyerTalk UA forum...finally, our vindication!

pcharles

Wall Street also ignored the latest round of dissatisfaction of raising bank fees (especially BofA) and the impact thereof.

mahanaloa

Most stocks are bad long term investments considering today's trading environment. If anyone bought airline stocks in early to mid November they would be sitting pretty right now even with recent declines and I would have hoped they had cashed out by now regardless of any so called tax consequences.
Also, anyone using a "buy and hold" strategy should also have the corresponding option trade to go along with it.

As Tonto always said:

Kimosabe
Airline stocks long term investment bad
Long term dividend paying stocks long term investment good ^
AAPL long term investment ^^^

http://www.cnbc.com/id/46641431/Why_...t_Than_a_House

iahphx

I actually think UAL could be a good long term investment here -- perhaps because all the pundits on Wall St. think it isn't! The airline industry has been radically transformed in recent years through consolidation and more profit-oriented management. It's hard to imagine an industry that's faced more financial obstacles, so these companies are very lean.

When oil finally stops going up every month, this will be obvious. The fact that they can make money despite the constant fuel spikes should tell us all something.

But it's very difficult to predict when the oil market will turn. I might suggest it is impossble. We're now getting crazy demand destruction (gasoline and diesel use in the US is down 7% year over year, and don't believe the nonsense that at these sky-high prices demand is growing rapidly in China and elsewhere). At the same time, Saudi Arabia has started pumping like mad, and here at home new oil discoveries like the Bakken are causing our oil imports to drop dramatically. The problem is that the oil market misses all these supply and demand signals because it is "financialized" -- paper oil on Wall Street is swamping the market for real oil. And the speculators keep inventing a new "fear du jour" (Iran is the latest) to justify their behavior. If you could predict when this cycle will end, you could make an obscene amount of money.

EWR764

Agreed.

I was at the J.P. Morgan Aviation Conference earlier this week in New York and can echo the notion that United (and to a lesser extent DAL) is clearly in favor amongst Wall Street types. Their debt reduction of 20% in the last several years, healthy margins, business-oriented network, ROIC focus and capacity discipline has the Street pretty satisfied with the merger thus far, notwithstanding customer sentiment.

Again, downplaying the impact of fuel on the long-term outlook of this industry is ignoring reality. However, even a major spike in fuel prices will not have the same effect as 2008 because the major carriers, with the exception of AMR, have dramatically changed the way they do business. The industry as a whole is as healthy as it has been in quite some time.

WineCountryUA

this sort sums it it up
Southwest Airlines says high fuel prices mean it won’t earn a profit in 1st quarter

goingbananas

True...and as I sit here waiting for my HKG flight, (on CX), I am reminded that the fuel cost for this run will be right around 200K...so, UA's challenge will now be to get premium fares paid on this INTL run (like SYD), to make it profitable. Selling C seats at 40%+ corporate discounts as well as Y to C upgraders I hope cover the $$$ compared to say...CX and SQ and what they are generating because as C class margins goes..so does the profitability of the route .....