The higher returns last decade were primarily a result of capacity discipline. I was encouraged during the first quarter conference calls that nearly all the carriers were scaling back capacity and cost plans, lowering the bar for when demand turns around. The third key variable is fuel. Right now, fuel is well above its historical mean. At these levels, I believe fuel prices are an opportunity more than a risk, but clearly, oil prices have stayed higher for longer than I had expected.
Investors can t buy or sell airline stocks without having some opinion on oil prices.
This year, the major US airlines are taking 309 planes as compared to 295 in 2000 and 367 in 1999. On the other hand, they are also retiring more planes 200 in 2001 versus 142 in 2000 and 237 in 1999. The problem for airlines is that the lead-time in orders is greater than their demand visibility. Orders occur during good times, but planes often come in right when demand starts to falter. The current downturn will probably not be reflected in deliveries until late 2002.