Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Where is the Dow Stock Market Santa Rally? - 17th Dec 18
With Weaker Climate Consensus, Expect Elevated Climate Change - 16th Dec 18
SMIGGLE Advent Calendar 2018 UK Contents - What You Get Look Inside Review - 16th Dec 18
Is there a Lump of Coal in Santa's Stock Market Bag? - 16th Dec 18
This Market Will Drive Gold in 2019… - 16th Dec 18
Gerald Celente:Central Banks Can’t Stop a 2019 Debt Disaster - 16th Dec 18
Gold Stocks Triple Breakout - 15th Dec 18
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

Why Airlines Are The Next Big Trade

Companies / Sector Analysis Jun 07, 2017 - 04:41 AM GMT

By: John_Mauldin

Companies

BY JARED DILLIAN : I’m a longtime airline bull, going all the way back to 2012–2013—long before it was trendy.

I liked airlines because everyone hated them. Especially Warren Buffett, who once said that someone should have shot Orville and Wilbur out of the sky. He now owns the stocks.

A pilot wrote a great article in The New York Times saying that the conventional wisdom about airlines (which is that they suck) is all wrong.


People like to talk about the golden age of flying, with three-course meals, plenty of room to stretch out, people wearing ties, the piano bar in 747s… all that jazz.

But there was no golden age of flying. In fact, the golden age of flying is now.

Read for yourself.

Flying today is:

  • Massively cheaper—prices are down over 50% in real terms.
  • Way more convenient—there are flights pretty much wherever you want to go.
  • Safer—there hasn’t been a crash by a major airline in the US in 15 years.
  • Greener—planes were louder, less fuel-efficient, and more polluting.
  • Smoke-free—people used to smoke! Today, that would be intolerable.
  • Fun—there’s enough entertainment, with in-flight wifi, unlimited movies, etc.
  • Still pretty roomy—there’s a little less space than there used to be, but not as bad as people think.

This is yet another example of people being habitually sullen and taking things for granted. Flying is pretty awesome. As Louis C.K. said: “You’re in the sky… in a chair!”

False Perception

But didn’t United Airlines just throttle a guy and drag him off the plane?

Didn’t a flight attendant from another airline try to start a fight with a passenger?

Didn’t Spirit Airlines customers start a riot at the ticketing desk in Fort Lauderdale?

There is a phenomenon in social psychology—I don’t know if there is a name for it1—but when you see something in the news, like a passenger being mistreated, chances are you going to see that over and over again for months, until the news people get bored and move on to something else.

Based on the newsflow, you might be led to believe that airlines beat up their passengers all the time, and that flying commercial is some kind of dystopian hell.

Certainly some aspects of it are less pleasant than they used to be, and a lot of that has to do with airport security.

If Everyone Hates It, Buy It

One of my really great trades was back in 2011 when Occupy Wall Street happened.

Oh, I remember that clearly.

Sentiment towards banks and bankers is still pretty bad, but it reached a low point in 2011. I remember thinking… if everyone hates banks, then banks are probably going to… rally!

In fact, it was a massive rally. I called the trade “Occupy XLF” at the time. Occupy Wall Street pretty much marked the lows in financials.

It always works out that way.

Airlines aren’t on the lows, but I can tell you that when everyone hates airlines… airlines are probably going higher.

Want another example of how this works? Remember Deepwater Horizon? The BP oil leak in the Gulf of Mexico?

The explosion happened on April 20, 2010, and the leak was capped in July. Remember how angry people were at oil companies?

Yup. The Occupy BP trade.

Airlines Are Big Businesses

Airlines have been such horrible stocks for so many years that people have completely forgotten that they can be… not horrible.

There was actually a time where there was speculation that United Airlines would be taken private in a leveraged buyout (LBO) in the late eighties, sending the stock into space.

Of course, that was peak private equity stupidity because an airline is about the worst possible business to LBO. But it shows how drastically different sentiment can be from one decade to the next.

Let’s play the market cap game.

American Airlines is the largest airline in the world (by routes). What do you think the market cap is?

Dum dum da…

$23 billion.

eBay is $37 billion. eBay is where old people sell baseball cards.

I don’t know, guys.

Airlines are not special. They have the ability to be wildly profitable like any other business. Now that there are only four major American carriers, my guess is that they have some pricing power.

And fares have come up a bit—and they will come up more.

And you will pay them—because you are getting richer, and because they are still very low in real terms.

It would have been nice if Buffett was bullish in 2013, but he’s no dummy. It’s not hard to see the potential here.

Grab the Exclusive Special Report, The Return of Inflation: How to Play the Bond Bear Market, from a Former Lehman Brothers Trader

Don’t miss out on this opportunity to cash in on the coming inflation.

Jared Dillian, the former head of Lehman Brothers’ ETF trading desk, reveals why inflationary price increases could be much higher than 1% or 2% and how you can position yourself for big profits as the bond market falls.

Download the special report now. 

John Mauldin Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules