American Airlines Bullish on Indian Market, Will Benefit From Fall in Oil Price (AMR, CAL, LCC)

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Includes: AAL, UAL
by: Jack Miller

What a difference 10 years can make! American Airlines just added a new flight from Chicago to Delhi, India. It did so without buying a new plane or cutting out service to any other city. The plane will be turned around in time to make a Chicago-London flight and be back in the US in time for the next Indian flight.

American employees accepted pay cuts a few years back to help the airline survive tough times. Now the airline pays the employees bonuses when they help increase revenues. "This is not your father's airline."

CAL is my favorite, LCC is the best value by several measures, but AMR is a solid competitor. The bond grades of CAL and AMR are the same. These bonds are not investment grade but cash on the books should grow dramatically in 2006. Upgrades are likely. The timing is not right to invest in the "other" low cost carriers.

The bullish percentage ratio on oil stocks is up around 83%. This is a solid contrary indicator. If the majority is as wrong as usual, oil could quickly trade at $53 per barrel or less. The annual earnings should oil average $53 will be better than $4.50 per share for AMR and CAL. Oil inventories are currently unusually high. If the weather warms a little, oil prices could drop quickly and airlines could soar. Tomorrow's gas inventories are worth noting.

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