Friday, June 25, 2004

Airline Stocks: Taking A Flyer

According to the Air Transport Association, the U.S. airline industry group, each $1 rise in the price of a barrel of oil costs American carriers $425 million per year. So it's little wonder that investors have been ditching their airline shares lately. Year-over-year, airline stocks in the S&P 500 are down 11 percentage points, versus a gain of 16 points for the broader index.

In the stock market, however, sometimes it pays to run in the opposite direction of the stampede. "Nobody wants to own the [airline] industry," says John Escario, manager of the Rydex Transportation Fund. "If you're a contrarian, that's probably the best time to start looking at it."

The airline industry does show a few signs of coming out of the clouds, especially if you believe that the economic recovery can be sustained. Through May, revenue passenger miles (RPMs)--a measure of demand equaling the total number of passengers carried times the number of miles flown--is up 12 percentage points versus the same period last year. And oil prices have dipped below the $40 level of a few weeks ago.

Full story at Forbes.com