Airlines: Open Skies or just that queasy feeling

26 12 2007

Airlines: Open Skies or just that queasy feeling

Posted by: in Companies Competitive Strategy

Filed under: International markets, Other issues, Good news, Rants and raves, Competitive strategy, US Airways Group (LCC), Contl Airlines’B’ (CAL), Headline news, Delta Air Lines (DAL)

As regular readers might have observed I am one to mull things over a while before offering up a slice of investment opinion pie. A few weeks ago Barron’s (subscription required) ran a cover story titled “Open Skies” discussing the imminent deregulation of trans-Atlantic air routes.

In this context they reviewed the potential for airline mergers, (something I’ve written about before in Why no airline mergers? Finally the answer…) and they commented on who the winners and losers might be. The article highlights the fact that there has been a 30 year agreement in place, “the Bermuda airline agreement” that limited Heathrow-U.S. air traffic to just four airlines: two British and two U.S. Other foreign airlines were barred flying to the U.S. except from their own nation’s airports.

Under terms of a new agreement cast last April U.S and European Union airlines departing 27 nations will be able to fly direct routes. Barron’s does a fairly thorough analysis in my view of the potential success among various airlines and those that may come up short.

Under the heading of Dividing the Spoils they list the winners as Air France-KLM ADR (NYSE: AKH), Continental Airlines, Inc. (NYSE: CAL), Delta Airlines, Inc. (NYSE: DAL), Deutsche Lufthansa ADR (OTC: DLAKY), Ryanair Holdings plc (OTC: RYAAY), UAL Corporation (NASDAQ: UAUA), and the US Airways Group, Inc. (NYSE: LCC).

Without choosing sides and speculating as too which airlines might do the best financially in this new environment, as Barron’s has done, I would caution investors that it is all speculation. No doubt, this is a part of the investing world, still, there are industries that offer greater predictability than the the airline industry.

Airlines are capital intensive, subject to mountains of regulations and treaties, subject to fluctuations in fuel prices and politics, require heavy maintenance responsibilities, and must deal with unions and hijackings and more issues. Therefore while I’ve no reservations about making airline reservations to fly, I do get a queasy stomach when it comes to investing in them. If you normally think twice before investing, then think three times before you consider these stocks.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.