| In America, we have a desire for big cars and even | | | | will get worse. All it will take is some turmoil in |
| bigger homes. In the recent past, many rarely | | | | Venezuela or another oil producing country and you |
| wrestle with the cost of running these items . . . . but | | | | have a recipe for oil at $200. |
| all of that is changing. The energy we use is now | | | | Some will suffer from high oil prices more than |
| more expensive than ever. | | | | others. Some experts point to the automobile |
| There's no other way to say it: Americans are | | | | industry as one that will suffer the most. No doubt |
| energy pigs. | | | | they will be impacted, but I think the airline industry is |
| I am, you are, we all are. Compared to the rest of | | | | headed for much worse. |
| the world we consume tremendous amounts of oil. | | | | Alternative power sources for cars are available, |
| On a per capita basis we consume twice what the | | | | though not widespread. They can be run on |
| Britons, Germans, and French consume. Amazingly, | | | | bio-diesel, ethanol, or battery power. Cars have also |
| we eat up more than 13 times the oil when | | | | been run on solar power, flywheels, and even fuel |
| compared to the Chinese. | | | | cells. |
| According to the Wall Street Journal, America | | | | You can't run a Boeing 747 aircraft on any of these. |
| consumes more than a quarter of all oil produced in | | | | The airline industry is tied to the price of jet fuel and |
| the world! One out of every 4 barrels. This level of | | | | higher oil prices means higher jet fuel prices. The |
| consumption is a problem. Just a few days ago oil | | | | airlines are already suffering. United Airlines (UAL) |
| traded for the first time over $100 per barrel. It was | | | | announced today an increase in domestic fares by |
| the trade heard round the world, so to speak. | | | | $10 each way to offset rising fuel prices. |
| The fear is that the price will continue to rise beyond | | | | Some industry insiders believe that this is only the |
| $100. In the late 1970s and early 1980s America was | | | | first round of price increases. Amazingly, the only |
| hit with high oil prices. . . adjusted for inflation it | | | | major airline that focuses on hedging its fuel needs is |
| peaked at $102.81 in April of 1980. That was a time | | | | Southwest Airlines (LUV), and their hedges are |
| of tremendous economic turmoil. | | | | expiring. The rest of the industry (and LUV very |
| OK, enough statistics, what does this all mean? | | | | soon) continues to operate with significant exposure |
| For one thing, the phrase "this time it is different" | | | | to oil prices. |
| really rings true. Record oil prices in the early 1980s | | | | If the economy slows, as many experts predict, |
| were caused by political turmoil and OPEC . . . today it | | | | demand from consumers for flights will fall. The rising |
| is being driven by something entirely different, | | | | costs of fuel and the falling demand from consumers |
| demand. | | | | will result in big losses for the airlines. Last year was a |
| India and China are growing rapidly. Their exploding | | | | terrible one for the airlines, but I'm not convinced this |
| middle class is hungry for a better lifestyle. One that | | | | is the bottom. |
| includes buying automobiles and using consumer | | | | To profit from this mess, I would look to eliminate |
| goods like plastics that are made from oil. Couple this | | | | any holdings you may have in the airline industry. |
| new demand with already sky high consumption in | | | | Those with a more aggressive approach could look |
| the US and growth in Europe and we have a | | | | to buy puts on some of the larger domestic airlines |
| problem. Demand that far outstrips supply. | | | | such as United (UAL) or Delta (DAL). |
| This demand for oil is not going away. If anything, it | | | | |