Fuel Prices Dampen Airline Outlook (Breakfast News) December 29, 1999


Wednesday, December 29, 1999

"Freedom is the will to be responsible to ourselves."
-- Nietzsche

Fuel Prices Dampen Airline Outlook

By Richard McCaffery (TMF Gibson)

Soaring fuel prices and canceled flights are taking a bite out of the profits of major airlines this quarter, The Wall Street Journal reported.

Analysts have cut earnings forecasts for this quarter and next year for a handful of the major carriers as oil prices approach nine-year highs and travelers opt to stay home for millennium celebrations.

Candace Browning, an analyst at Merrill Lynch, reduced projections for Delta Air Lines (NYSE: DAL), Continental Airlines (NYSE: CAL), Alaska Air Group (NYSE: ALK), and AMR Corp. (NYSE: AMR), the Journal reported.

Delta's stock closed at $49 1/8 last night, way off its 52-week high of $72. Alaska Air Group closed at $35 1/16, down from its yearlong high of $54 11/16. Continental and AMR are faring better as the year comes to a close: Continental closed at $43 3/8, just off its high of $48, and AMR, the parent company of American Airlines, closed at $64 11/16, down from $75 7/16.

Overall, the Standard & Poor's index that tracks airline stocks is down 3.4% this year, after basically no gain last year. The S&P 500 is up 16.8% so far in 1999.

As long-term investors, Fools don't have to worry about short-term worries like earnings projections. Browning said issues affecting the airlines aren't expected to be long-lasting.

But many Fools steer clear of airline companies because it's such a difficult business. For example, no airline company was selected for The Motley Fool's Now Index, a compilation of 50 companies our readers helped select as both excellent and representative of the world economy going into the 21st century.

That said, reading about the airline industry can be a great place to learn a few business basics. It's important that investors understand how the prices of commodities such as fuel can impact a company's bottom line; how airline companies hedge oil prices to offset rising fuel costs; how a dip in the economy affects cyclical stocks like airlines by reducing air travel; how intense competition robs companies of pricing power and forces them to invent creative ways of attracting customers.

So even though a particular industry may not be your cup of tea, you can learn a lot by spreading your wings.

News to Go

Accounting, tax, valuation, and consulting services firm Century Business Services (Nasdaq: CBIZ) will take a $25 million to $30 million charge in the fourth quarter to eliminate more than 200 jobs, consolidate offices, and sell four non-core business units. The company hopes to save $15 million in pretax savings through the restructuring.

Investment banking giant Goldman Sachs (NYSE: GS) is buying an 18% stake in an Argentinean media company called Grupo Clarin, Bloomberg reported. The stake is worth $500 million and is part of an effort to capitalize on the growing Latin American media and communications market.

Computer, business, and self-help book publisher IDG Books (Nasdaq: IDGB) announced that James Doehrman, its vice president and chief financial officer, is resigning to join privately held Octane Software, which makes Internet-based customer relationship management software.

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