Good things come to those who are willing to wait. This should be the lesson investors should take away when looking at the recent fortunes of airlines. For the longest time, airline stocks were the dogs of the stock market. It just didn’t make sense to invest in airline stocks, especially with the price of oil at over $100 a barrel. If there’s any one industry that is highly susceptible and sensitive to changes in oil prices, it is the airline industry.
Well, what a difference a few months make. Now that oil has crashed by more than 50%, airlines are looking really good. The secret to their improved fortunes is the fact that the four biggest airlines? United, Southwest, Delta, and American are behaving like oil is still over $100 a barrel. This means the same fares and packed planes. While the consumers may have a problem with this, investors definitely love this pattern. In fact, times are so good for the historically troubled American airline industry that American Airlines reported its biggest annual profit recently. It racked up $4.2B in profit, not bad for an airline company.
There are a lot of structural reasons why the airline industry has always been a tough business. It’s nice to see the investors that stuck by these sectors finally getting their reward. Patience does pay off in the long run. Whether this streak of good fortune will last is another matter entirely. A lot of the American airline companies that are posting solid profits are actually dependent on global growth. As you probably already know, global economic growth is beginning to decline, and the strong dollar is not helping these airlines as they compete with international carriers.