Historic buying opportunity at this levelForget the cheapest relative p/e multiple in history, This is a historically wide relative multiple (i.e., relative to the other transports and the S&P 500) at a time when the big carriers have less competition than ever before, remain very disciplined as to capacity and rational seat pricing, have costs/contracts well under control, are re-rationalizing flights and maximizing cost-benefit relationships of gates, have the newest/most efficient fleets of all time,and continue to benefit from whopping fuel saves -- call fuel an additional $8B cost save coming for the airlines in 2016 if brent stays below $50 on ave for the year).
The airlines and arguably the mostly quality sell side analysts badly miscommunicated the impacts of longer haul flights replacing shorter hauls on domestic capacity this year. While unit capacity grew in the low single digits, "capacity in SM terms grew closer to high single digits. That led to months of ridiculously uninformed financial journalism and analysts and portfolio managers without airlines research expertise believing that the capacity, seat pricing and management competence seen in this business since a decade ago all flew out the window so to speak. Most people writing such nonsense could not even begin to explain the point I just made, let alone cut through it to realize, as per my first post on this thread, that right now is an incredible, historic opportunity to buy the airlines dirt cheap again. That is in absolute and relative valuation terms -- more perspective none of the pseudo journalist/analysts community has any idea how to grip.
As for the fuel benefit, in recent months, the group has actually traded contrary to what most would suspect would happen as fuel drops and rises. In the end analysis, the legacy players are using the vast majority of the fuel benefit via taking out shares with a large capacity loader and dump truck, debt is being repaid despite fleet replacement. As YOY lapping of RASM "dilution" from the longer haul effects gets behind the group, valuation should come around hard and fast.
Furthermore, Jamie Baker, jpm's analyst and easily the best player following the group now, said back in May he would be pleased to see oil quickly get back to $75/barrel so the business could show everyone they will remain massively profitable at those levels. In the meantime, the fuel differential and retention of that benefit by the legacy carriers since last January will eliminate another 15% or more of outstanding shares -- and that is if Brent ramps evenly to $75 now say end of 2017.