Fin - Breakout - US

Falling Fuel + Shrinking Capacity = Profitable Airlines: Ray Neidl


In the three months since analyst Ray Neidl was last on Breakout, stocks, oil and the pace of economic recovery have all fallen sharply, while three of the four picks he made back in March have all risen.

So we were obviously excited to hear what he had up his sleeve now. And the analyst from Maxim Group did not hold back. "If you think the economy is going to really grow, the big carriers are the place to be," Neidl says before elaborating: "I happen to think the economy is really slowing down."

And because airlines have become "very conscious about their capacity," Neidl says they are already cutting their fleets and flights ahead of the Labor Day holiday, the typical end of the busy summer travel season. Combine that with lower fuel costs and rising revenue per available seat, and he says we should see earnings magic through the summer, particularly for the smaller players.

"You have better protection with the niche carriers," he says, because they have lower cost structures and can keep growing even in a slowing economy.

Panama-based Copa (CPA) is a repeat pick for Neidl, who bluntly says "Copa is the king" due to its ability to grow earnings 20% in a down economy. The stock has been reward handsomely since the March 2009 lows, going from $20 to $65 a share. He says Copa is benefiting from growing business travel and a convenient connection hub for fliers en route to Central America, the Caribbean and South America from the U.S.

Other Neidl niche picks include Hawaiian Holdings (HA), which he says can still increase its Asia-to-Hawaii business, especially from South Korea, which he says is "going to be enormous"

Neidl also likes Spirit Airlines (SAVE), which just came public a month ago. "They are a bottom-feeder," he says. While Spirit isn't for everyone, Neidl thinks the company has a niche in the lower economic arena has distinguished itself as an innovator of new fees, along with garnering attention for its plan to charge travelers $5 to print a boarding pass.

On the commercial aviation side of things, Neidl was also eloquent and opinionated, saying that Boeing's (BA) four-year backlog for narrow-body 737's works as a disincentive to develop a new one since the current model is obviously still selling well.

And for good measure, Neidl calls the National Labor Relations Board, or NLRB, "ridiculous" for meddling in the companies plant-siting decisions, saying the government body "is no longer a neutral arbitrator, but an arm of big labor." Even if Boeing were to ultimately lose its fight with the unions and government, it would likely just shift the production overseas instead.

Would you buy the airline stocks right now, or are you more prone to fly standby until the economy firms up? Let us know in the comment section below or by email at

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