Airlines Still Have a Long Way to Go

Includes: AAL, DAL, FAA, UAL, UAUA
by: Wall Street Strategies

"That which does not kill us makes us stronger." -Friedrich Nietzsche

One thing is for sure: Americans have toughened up over the last couple of years. Call it baptism by fire, but we have been reminded that we are warriors. It would be considered rude or insulting to suggest that we needed a wakeup call, but when the dust settles, I think the nation will be much better for the pain and agony. Just think, our debt to GDP ratio is up 12,000% since 1940; to me, that means people in the government have been stealing so much money for a long time. The masses are awakening. There is a wave like the one you see at a football game; people either know things they didn't care to in the past or they want to know things they didn't in the past. Two brutal wars tell us we better stay strong militarily, and one serious battle for the soul of the nation tells us we better stay vigilant not to allow the rug to be pulled out from under our feet.

We don't want to be pushovers, or pushed around. Yet everyone is taking shots from politicians, to banks and airlines. Yesterday, the XAL was the best performing index in part due to very strong comments from Jessup and Lamont (their airlines guy is the best) on United (UAUA) and news of more ancillary charges.

One of the worst businesses on the planet, airlines are edging toward a business more akin to dotcom than an industrial industry. Consider that in the third quarter of 2009 airfares dropped 14.4% year over year. Adjusted for inflation, 3Q09 airfares are down 26.86% from the year ago period. In fact, adjusted for inflation, airfares for 2009 were by far the lowest since 1995. The highest airfares since 1995 adjusted for inflation came in 2000 when the nation was rocking on the elixir of a runaway stock market rally and visions of early retirement and island ownership. It was fun back then until reality struck, and struck, and then struck again.

The good news is that quarterly airfares edged higher, the bad news…

…airlines aren't charging much for tickets these days but they are more than making it up once they have you captive. Like the free website with a captive audience they have to monetize the work by charging for things. Delta (NYSE:DAL), United (UAUA), and Continental (NYSE:CAL) implemented a bag check-in fee increase on February 1. These fees are for first and second bags. US Air (LCC) increased its first bag fee to $23.00 from $20.00 and second bag fee to $32.00 from $30.00.

Remember last year when airlines initially began hiking fees as a response to soaring jet fuel costs? Well, those costs have come back down to earth but this bag thing was such a hit it generated $2.0 billion in the third quarter. I get it that dishonesty is the way of the business world, but this takes insulting intelligence to another level.

Yesterday, American Airlines announced that it was charging $8.00 for blue fleece blankets and inflatable neck pillows. When I was a kid we used to get a pack of stuff including a deck of cards, a wing pin, cologne (I think Aqua Velva was the favorite), a few post cards, and other items that made it feel like swag for the regular passenger. Airline stocks are moving higher but have a million miles to go to get back to the 1990s run. I don't think that it will happen with dishonest gimmicks.

Disclosure: Author holds no positions in the stocks mentioned.