"Market Monitor"-Julius Maldutis, President & Chief Airline Analyst for Aviation Dynamics
Friday, May 02, 2008PAUL KANGAS: My guest "Market Monitor" this week is Julius Maldutis, president and chief airline analyst for Aviation Dynamics. Welcome back to NIGHTLY BUSINESS REPORT Julius.
JULIUS MALDUTIS, PRES. & CHIEF AIRLINE ANALYST, AVIATION DYNAMICS: Thank you, Paul.
KANGAS: On your last visit with us in early July of 2007, you were very bullish on the airline stocks, because you saw a big consolidation movement underway. But the stocks, as you well know, have been absolutely pummeled. Explain what's been going on.
MALDUTIS: Very simply, what happened was that airline fuel prices, which were about $74 a barrel went up to $120 a barrel. I had hoped that history would repeat itself what happened in the closing months of 2006 when oil prices dropped by 50 percent and stocks went up by 46 percent.
KANGAS: Uh-huh.
MALDUTIS: Unfortunately, history did not repeat itself.
KANGAS: Well, what do you believe is likely to happen for oil prices for the rest of this year? MALDUTIS: Well, I think there are chances that if the U.S. dollar increases in value, you will see oil prices come down. We saw that sensitivity this week.
KANGAS: What level do prices have to fall in order for the airline group to really come alive on the upside? MALDUTIS: Well, I think they got to get back down to about $80 or $70 a barrel. Otherwise, we're going to see lots of more bankruptcies. We already have eight airlines that went bankrupt in the first four months of this year.
KANGAS: Oh my goodness. That's right. Which of the airlines are most likely -- in your opinion -- to successfully merge? MALDUTIS: I think that the Delta/Northwest merger is going to sail through, because it makes a great deal of sense. The, merger between United and U.S. Air will still remain to be seen.
KANGAS: How long will this take? MALDUTIS: Well, I think by the end of this year, the Delta/Northwest merger will be approved.
KANGAS: OK.
MALDUTIS: But we'll have to wait and see about the United one.
KANGAS: On your last visit in July, you liked the number of airline stocks. Let's see how badly they've been beaten up and it's pretty bad. US Airways (LCC), UAL (UAUA) down huge percentages. Then there were five in total other than Frontier which went into bankruptcy. Northwest (NWA) and Delta (DAL) also huge losses. I hope you protected yourself with some stop-loss orders on some of these issues. MALDUTIS: Well I took a few hits on that.
KANGAS: Jetblue (JBLU) down -- hard to believe -- almost 60 percent. Would you buy any of these depressed airline stocks right now, Julius? MALDUTIS: I still think that the Delta/Northwest merger will work. I would buy those two. And also Jetblue has a very unique relationship with Lufthansa. So those would be the only three that I would own. But it all again depends on what happens to oil prices.
KANGAS: That's right. It's completely dependent upon that. What percentage now do oil prices account for the airline's expenses? MALDUTIS: Anywhere from about 60 percent more than labor to about 44 percent, so oil prices, fuel prices are more than labor costs. KANGAS: Did you ever think that you'd see fuel costs exceeding labor costs by this much? MALDUTIS: No. I don't think I did and I think very few airline executives thought the same.
KANGAS: Ok. Now, let's have a look at the stocks that you still like. We want to see the chart and the trading symbols. Delta, you like DAL, on the big board. It's only around $8.50 a share. You like it here. MALDUTIS: Yes, I do as well as Northwest, because I think that merger will be successful.
KANGAS: Ok. Let's have a look at Northwest chart. There it is at $9.83 and Jetblue you like. Let's have a quick look at that chart. OK. They've all been really hard hit. So you like them here? You personally own any of the stocks you've mentioned or have other disclosures to make, Julius? MALDUTIS: I own those three, Delta, Northwest and Jetblue.
KANGAS: OK, I wish you better luck in these next periods before you come back. Maybe that group will come along.
MALDUTIS: It all depends on oil.
KANGAS: I got you. Julius, thanks for sharing your views with us.
MALDUTIS: Thank you.
KANGAS: My guest Julius Maldutis, president of Aviation Dynamics.
