Rob Black's Transport Stocks Report

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Includes: F, FDX, LUV
by: Rob Black
FedEx (NYSE:FDX), the No. 2 U.S. package shipping company, said profit rose 27 percent as global economic expansion fueled demand for deliveries. Sales rose 10 percent to $8.49 billion.

FedEx is taking advantage of growth in China, the world's fastest-expanding economy, by buying out its Chinese joint- venture partner, constructing a new shipping hub and increasing employment. FedEx expects to have 6,000 employees in China, up from 3,000 now, after the transaction and is building a $150 million hub in Guangzhou to replace its Asian base in the Philippines by 2008. A healthy global parcel demand and pricing environment should overcome drag from rising fuel prices. The International Monetary Fund expects global economic growth of 4.9 percent in 2006, capping the strongest three-year stretch since the early 1970s. FedEx and larger rival United Parcel benefit as economic expansion feeds manufacturing, trade and retail sales.

Ford (NYSE:F) may fail to meet its goal of returning to profit in North America by 2008 because of declining sales of sport-utility vehicles. The officials, who declined to be identified because they aren't authorized to speak for Ford, said a jump in gasoline prices is hurting demand for SUVs. Competition from General Motors (NYSE:GM) and Toyota (NYSE:TM) also may erode sales of Ford's pickup trucks.

After 35 years, Southwest Airlines (NYSE:LUV) is taking its first overt step toward junking its fabled tradition of open seating next month when it tests the effect of assigned seats on its ability to quickly get its planes back into the air. A decision to begin assigning seats on all Southwest flights likely is months away, and would not be implemented before 2008. The carrier invented the "20-minute turn" out of necessity in late 1971, the year it began flying. In order to meet its payroll, the thinly capitalized start-up had to return one of its four leased planes. But by turning its three remaining planes in 20 minutes, it continued operating its full schedule. The idea worked. In the process, Southwest discovered that an intense focus on the highly efficient use of assets — planes, gates and employees — is a key to its profitability. That focus on efficiency became the company's hallmark. And it has paid off with 60 consecutive quarterly profits. Southwest's turn times have stretched in recent years to around 30 minutes, on average. In part that's because it now flies larger-capacity planes. It also flies into more big airports where congestion slows operations.