Market Snapshot - Jan/Feb2012

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Lachlan McPherson provides up-to-date market analysis: 2011 – a year the airlines would rather forget.

The year 2011 was a year most international airlines would rather forget. In fact, for most companies listed on any global exchange, 2011 was hardly a year for the record books.

Cyclical in nature, airline stocks are directly affected by the business cycle. In times of volatility and uncertainty on global markets, airlines are first to feel the impact of a downturn in the business cycle. Add to that a heavily unionised industry and commodity price pressures and it’s no wonder investors currently have a front seat at the American Airlines funeral. Qantas is in a similar, yet not quite so extreme, position.

For anyone who missed the action on US markets in the first week of December, American Airlines’ parent company, AMR, laid its final cards on the table, applying for Chapter 11 bankruptcy protection as well as requesting its leases on two dozen planes be liquidated. The latest movement shouldn’t come as a huge surprise to investors or traders. Cost pressures from an ageing fleet and a more recent rejection by workers of a new pay contract have seen American Airlines running out of options to maintain its balance sheet and stay afloat. Resistance pressure has been applied to upper ranges and AMR stock has been constantly pushed into a downward trajectory. Even so, the filing obviously came as a surprise to many, with shares falling 84 per cent in a single session.

Less surprising is that the issues facing AMR appear very similar to those facing Qantas. Viewed in ProfitSource, the performances of AMR and QAN in 2011 are frighteningly similar...

Excerpted from an article originally published in the Jan/Feb 2012 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2012, Your Media Edge Pty Ltd.
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