High oil prices may be negatively impacting the airlines sector, but there is some hope. Capacity as measured by the seats sold as percentage of available seat miles is steadily rising. Airlines as a group will continue to struggle with the high fuel costs and competitive pricing, but an area that I believe shows a decent upside trend is the maker of airplanes.
The reality is we are once again seeing some life resurface in the aerospace stocks such as Boeing Co. (NYSE/BA), which has recovered from below $30 in early 2003 to over $83, a rise of over 180% in about three years. Boeing is firing on all cylinders as the demand for new airplanes steadily gain. Just a few weeks ago during the visit of Chinese President, Hu Jintao, China made a substantial purchase of Boeing planes and there is the potential for thousands more over the next decade as China steadily grows its commercial airline sector and demands new planes. The win for Boeing was especially sweet as the company battles Europe-based Airbus for orders.
Boeing saw strong first quarter earnings of $0.88 per diluted share, $0.12 above the average Street estimate. It was the fourth straight quarter in which Boeing blew by Street estimates. Boeing is clearly on top of its game, but may be close to its fair price after the price appreciation.
In the regional jet market, a company that has broken out of a previous trading range is Canada-based Bombardier Inc. (TSX/BBD.SV.B). The maker of regional jets and trains (world’s largest) had been stuck in a downward trend from late 2001 to early 2005, but is now showing some optimism as the demand for regional jets rise. I also believe as oil prices remain high, more airlines will employ smaller and more cost effective regional jets of up to 110 seats for shorter haul flights. Bombardier may be able to reap the benefits of this potential shift in trend. And if the company can make its train business profitable, the stock can really gain some altitude.