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Wolfe Research points to capacity discipline as key factor in airline sector

Published 11/07/2016, 12:36 PM
Wolfe Research points to capacity discipline as key factor in airline sector
  • Wolfe Research analyst Hunter Keay isn't worried that higher oil prices in the future will be a negative for airline companies.
  • He thinks the impact of capacity discipline is more important than the bottom line of a lower fuel spend. Keay's analysis is below.
  • "Multiples drive about 70 percent of the movement in stock prices. And multiples are dictated by the perception of pricing power, and pricing power is dictated by capacity control. Excess capacity drives pricing down... It’s not about profits, it’s about how they make the profits, about pricing power. Capacity discipline and fundamental behaviors are far more important than the amount of money they earn."
  • Oil prices are up 0.7% on the day, but have dropped sharply over the last month.
  • Airline stocks: AAL, UAL, DAL, RYAAY, OTCPK:CPCAY, OTCPK:SINGY, CEA, ZNH, CPA, GOL, LFL, OTCQX:DLAKF, OTCPK:QUBSF, ALK, HA, OTCPK:AIRYY, OTC:MLYAF, OTCPK:AFLYY, VLRS, LUV, OTC:RYAOF, VA, LFL, SAVE, ALGT, CEA, OTC:EJTTF, OTCQX:ESYJY, AVH, OTC:AFRAF, OTCPK:ICAGY.
  • Airline ETF: JETS.

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