There are some businesses investors consider, as a rule, profitless. Airlines, passenger trains, and, at least recently, newspapers all seem to be ‘profitless pariahs.’ The airline industry, since deregulation in the late 70s, has had a hard time regularly pleasing investors. Considering it is cheaper now, in real dollars, to fly from New York to Greece than it was in 1965, it is no wonder the profits have sometimes been elusive.
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Now forget what was written in the first paragraph of this blog entry, because for the first time since 2000 the airline sector has turned a profit from January to March, according to the U.S. Department of Transportation.
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The average profit amounted to a whopping 2.7% in the first quarter. Last year, during the same quarter, the airlines lost 1.3%. Even more surprising is this is the fourth consecutive profitable quarter for the airlines.
Regional carriers made the most with an average of 6.3%. The larger network carriers came in a little lower at 2.5%. Finally, the low-cost carriers turned an average profit of 2.3%.
The Network carriers, Continental Airlines (CAL) and American Airlines (AMR), reported a combined operating profit of $559 million in the first quarter. This is up from a loss of $711 million a year ago. Northwest (NWA) came in at $205 million profit. While United Airlines (UAUA) and Alaska Air Group (ALK) posted losses for the quarter.
Low-cost airline Spirit Air led the profitability charge by turning in a 7% profit. Unfortunately, two sometimes-profitable low-cost companies, Frontier Airlines (FRNT) and JetBlue Airways (JBLU) took a hit. JetBlue, some may recall, is still suffering from the blow it took to its reputation when it left some diverted passengers stranded for hours in idle planes.
Regional carriers turned in the strongest results. Atlantic Southeast and American Eagle turned in operating profit margins of 12.9% and 11.2%, respectively.
Looking at this News from an Options Trading Perspective:
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Potential Trades:
All of the following option trades have 53 days until expiration. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
| Airline Industry Covered Calls | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company Name |
Stock Sym |
Stock Price |
OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Continental Airlines Inc. | CAL | 33.22 (-0.04) | CALHG | 07 AUG 35.0 (53) | $1.75 | 5.3 | 5.6 | 11.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AMR Corp. | AMR | 26.16 (+0.16) | AMRHY | 07 AUG 27.5 (53) | $1.30 | 5 | 5.2 | 10.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UAL Corp. | UAUA | 38.98 (+0.02) | UALHH | 07 AUG 40.0 (53) | $2.45 | 6.3 | 6.7 | 9.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| US Airways Group Inc. | LCC | 29.50 (+0.26) | LCCHF | 07 AUG 30.0 (53) | $2.05 | 6.9 | 7.5 | 9.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AMR Corp. | AMR | 26.16 (+0.16) | AMRHE | 07 AUG 25.0 (53) | $2.55 | 9.7 | 5.9 | 5.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SkyWest Inc. | SKYW | 25.36 (-1.16) | UWQHE | 07 AUG 25.0 (53) | $1.60 | 6.3 | 5.2 | 5.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Continental Airlines Inc. | CAL | 33.22 (-0.04) | CALHF | 07 AUG 30.0 (53) | $4.50 | 13.5 | 4.5 | 4.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UAL Corp. | UAUA | 38.98 (+0.02) | UALHG | 07 AUG 35.0 (53) | $5.30 | 13.6 | 3.9 | 3.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The trades listed above have sturdy downside protection of 5 to 13.6 percent. Also, the potential profit margins are sitting at a healthy 3.9 to 11.2 percent.
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Competitors:
Competitors for CAL include: AMR Corporation (AMR), Southwest Airlines Co. (LUV), and UAL Corporation (UAUA).
Competitors for AMR include: Delta Air Lines Inc. (DAL), Northwest Airlines Corp. (NWA), UAL Corporation (UAUA), Alaska Air Group Inc. (ALK), Continental Airlines Inc. (CAL), JetBlue Airways Corp. (JBLU), US Airways Group Inc. (LCC), Southwest Airlines Co. (LUV), and ExpressJet Hldgs. (XJT).
Competitors for UAUA include: AMR Corporation (AMR), Delta Air Lines Inc. (DAL), Northwest Airlines Corp. (NWA), British Airways PLC (BAB), Continental Airlines Inc. (CAL), Frontier Airlines Inc. (FRNT), JetBlue Airways Corp. (JBLU), US Airways Group Inc. (LCC), Midwest Air Group Inc. (MEH), and ExpressJet Hldgs. (XJT).
Competitors for LCC include: AMR Corporation (AMR), Delta Air Lines Inc. (DAL), Southwest Airlines Co. (LUV), and AirTran Hldgs. Inc. (AAI).
Competitors for SKYW include: Mesa Air Group Inc. (MESA), Republic Airways Holdings Inc. (RJET), AMR Eagle Holding Corporation (private), and Pinnacle Airlines Corp. (PNCL).
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