“We’re Sorry. Your Flight Is Full”

Daily Reckoning

By Zach Scheidt

Jet Fuel for Flights

This post “We’re Sorry. Your Flight Is Full” appeared first on Daily Reckoning.

“I’m sorry sir, but we’re completely booked. You’ll have to wait for the next flight out.”

That’s the story I got from the gate agent last night as I tried to make my way back to Baltimore.

I had made it to the airport ahead of schedule and thought I had a shot at catching an early flight. With all the flying I do, the airline staff are usually more than willing to help me out with flight changes. But unfortunately, Southwest is operating at capacity and there was no way they could fit me in.

Incidentally, there were no open seats on my scheduled flight which took off about 90 minutes later. Every seat was booked, giving Southwest Airlines (NYSE:LUV) another very profitable flight in the books.

Today, I want to tell you a bit more about the strong U.S. demand for airline travel, and how you as an investor can take advantage of this trend…

A Busy Season for Airline Travel

It looks like U.S. travel is starting to pick up early this year — even before the notorious “busy season” which officially kicks off the week of Thanksgiving.

Last night, on what I expected to be a relatively low key Sunday evening through the airport, security lines were surprisingly long.

According to what I’m seeing in my research, travelers can get used to long lines and full planes for the coming holiday season.

Late this summer, USA Today reported that U.S. airlines saw a 5% increase in traffic for Labor Day, shuttling 16.1 million passengers that holiday weekend. 1

Thanksgiving weekend is typically the heaviest and most concentrated travel day for U.S. airlines, and this year analysts are expecting 28.5 million people to fly between Friday November 17 and Tuesday November 28 — up 3% from last year.2

Add it all up, and you’ve got a strong period for airline profits… One that should drive Airline stock prices higher.

A Limited Time Travel Discount

While the outlook for holiday travel (and airline profits) looks very attractive, airline stocks are currently trading at discount prices. That’s because investors are looking at the wrong data.

About a month ago, I told you about some travel statistics that were heavily skewed by hurricanes Harvey and Irma. The two major storm systems hit the U.S. in rapid succession, causing U.S. airlines to cancel flights.

These cancellations naturally cut into profitability, catching the attention of investors.

It also hasn’t helped that jet fuel prices have been rising alongside the rally for crude oil. Below, you can see that the price of jet fuel has increased by roughly 40% just since the end of June.

While both of these issues (the hurricane disruptions and higher fuel prices) are real issues that have real financial impacts, both should be temporary.

It’s clear to see how the two consecutive hurricanes were a “perfect storm” that cut into summer profits but shouldn’t be a long-term drain on airline profitability.

Higher fuel prices should also be a temporary issue …read more

Source:: Daily Reckoning feed