Airline Shares Are a Good Investment

Imagine my surprise when I got back to my office on Tuesday morning and found a research firm touting airline stocks as a good investment.

You can smell silly-season desperation on this one right off since the research report starts this way: "Despite the fact that air carriers are losing money due to persistent market turmoil and surging fuel prices…" What part of that introduction makes you want to throw your hard-earned money down this particular well?

More to the point, airline stocks have always been a dreadful fundamental investment, something we discussed last summer, and I've been warning business travelers about them for the better part of 15 years.

And if none of that convinces you to put your investment dollars elsewhere, consider this: Jet-fuel prices averaged their highest annual price in history during 2011, selling for just a shade under $3.00 a gallon. That's a higher average cost than even in 2008, when crude-oil prices spiked at a record $147 a barrel.

The high price of jet fuel has already forced airlines to raise fares as much as $20 roundtrip since the start of 2012. If crude prices continue to rise (as is expected) or spike unexpectedly because of a crisis in the Strait of Hormuz, jet-fuel costs will spiral. That'll force carriers to continue to raise fares, depress the already-weak demand for tickets, and lead to the collapse of another segment of the airline market. That's exactly what happened in 2008. How does any of that auger well for investors?

The Blah, Blah, Blah on Fourth-Quarter Earnings

Allow me to predict some silly-season absurdity for you. The nation's airlines begin reporting fourth-quarter and full-year 2011 earnings later this week, and the news will look generally good. At least generally good by the standards of an industry that rarely makes money even in happy times. Since most carriers will actually report a 2011 profit, the analysts and the talking-head experts are sure to start babbling about the most absurd things. Exactly what, I don't know. But don't believe any of it.

No one—and I mean no one—knows what 2012 will look like in the airline industry. With oil and jet-fuel prices rising—and jet fuel accounts for at least a third of an airline's operating costs now—the outlook for this year is truly unknowable.

Want something else to temper the irrational exuberance you'll hear? Statistics released by airline-tracking organizations show that international business-class travel is slowing. That, of course, is where most airlines make the lion’s share of their profits these days. (And not that this is necessarily representative or predictive, but I feel compelled to report that there were just nine passengers in a 42-seat business class on my international flight last week. And I was flying on a free ticket claimed with my frequent-flyer miles.)

Bagging the Baggage-Disclosure Rules

Sometimes, travel's silly season does go beyond media humbuggery, however. The silliest story of the week comes from the Department of Transportation: It has decided to delay much-needed regulations that will require airlines to fully disclose their mind-numbing array of checked-baggage fees.

It's actually even sillier than that. The DOT, which has been quite proactive with passenger-protection rules in recent years, is sticking by its new rules. They go into effect, as planned, on January 24. However, the DOT says that it won't police the regulations or enforce them for at least six more months.

Why delay enforcement of rules you impose? The DOT says the airlines have made a compelling case that their baggage fees are so convoluted and contradictory that they don't understand them and may not be able to accurately inform passengers.

Now how silly is that?

The Fine Print…

One of our sister publications, Condé Nast Traveler, recently chose Chicago's two-year-old Elysian Hotel as the best in the nation. Effective February 1, the Elysian changes its name to the Waldorf Astoria Chicago. So anxious was Hilton Worldwide, the parent company of the Waldorf chain, to get the Elysian in the fold that it formed a joint venture to buy the 188-room property. No terms were announced.

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Joe Brancatelli writes Portfolio.com’s business travel column, Seat 2B. Brancatelli is the former executive editor of Frequent Flyer magazine and operates the membership site JoeSentMe.com. You can reach him at jbrancatelli@portfolio.com.