Seeking Alpha

Vaughn Cordle, CFA's  Instablog

Vaughn Cordle, CFA
Send Message
Vaughn Cordle has 25 years of experience in the airline industry as an equity analyst and consultant to various institutional investors, money management firms, suppliers, and labor groups. Vaughn founded AirlineForecasts, LLC and managed airline and transportation-related investment research... More
My company:
IONOSPHERE Capital LLC
My blog:
Ionosphere Capital HOT Topics
  • Terrorist Attempt Impacts Airline Revenue and Earnings  0 comments
    Jan 4, 2010 9:48 AM | about stocks: UAUA, AAL, AAI, JBLU, LUV, UAL, DAL, HA, RJET, BA, RYAAY

    If new security concerns dampen airline revenue only .25–.50 percent, the result is a 10–20 percent hit to airline earnings and share prices, all else held constant and based on our base-case scenario for 2010.

    Smart airline investors pull the “sell” trigger quickly when any new risk factor materializes that could impact earnings. We make the case that this is the proper response when investing in the over-leveraged and high [systemic and operating]-risk airline sector. 
     
    It is reasonable to believe that enhanced security measures will result in a small percentage demand drop-off as business and international travelers, and the well-heeled, seek alternatives and substitutes to the time-killing commercial airlines. In other words, increased “security” increases the travel hassle factor, which in turn results in a drop-off in high-yield traffic. Private corporate jet travel and Internet meetings [conference calls] become more attractive to airline passengers as more time is wasted waiting in security lines and freedoms aboard the aircraft are restricted. 
     
    Any drop-off in demand is likely to be temporary and minor, but the risk aversion to airline shares likely has longer legs as it is reasonable to expect other terrorist attempts in the future. Moreover, enhanced security will result in higher costs [lower earnings] for the airlines. Given the more than $3 billion gap between what it costs for aviation security – $5.2 billion in 2008 – and the fees collected from the aviation community, it also is reasonable to expect that the government will want to shift more of the costs of security to the airline industry.

     



    Disclosure: Westjet shares
Back To Vaughn Cordle, CFA's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.