Cramer on BloggingStocks: Airlines can’t survive oil at $120
Posted by: admin in Industry NewsFiled under: Industry, Apple Inc (AAPL), Market matters, Goldman Sachs Group (GS), Eaton Corp (ETN), Delta Air Lines (DAL), Stocks to Buy, Stocks to Sell, Cramer on BloggingStocks
TheStreet.com’s Jim Cramer states they can’t be profitable with this big cost - it’s time to move on.
Here’s a revelation. The airline industry is disappearing right before our eyes. And it doesn’t even matter. They can merge all they want, they can try to cut costs through synergy, but the business can’t survive $120 oil. The variable cost is 35% of their expense. That’s not tenable and it is going higher. Fares have to double to make it up. That’s just not tenable. The Dreamliner’s a nice savings, but this American industry won’t get there in time to be saved by it.
Last week we saw the massive give-up, the departure of even the longest-term investors. The stocks are signaling that most of them will have to restructure through bankruptcy. They’ve done it before, but this time it doesn’t matter. The fare increases have to occur, and they’re such that the airline structures can’t be profitable. It is one of those industries that can’t stay afloat without large federal subsidies, and that can’t happen.
I’ve hated the airline stocks ever since 1985 when I recommended Delta (NYSE: DAL) (Cramer’s Take) and my clients promptly dropped 50%. I reiterate that after the tremendous declines these stocks have, they’re still worth avoiding. Don’t be tempted to pick up these stocks if oil “swoons” down to $115. The airlines will rally, but they’ll need to do each bit of financing possible if a rally occurs.
This group has held an endless fascination on Wall Street from the first days it traded, yet the industry itself has done nothing but accumulated losses since it started. Find another industry to invest in! This one isn’t investible!
Random musings: I continue to believe that Apple (NASDAQ: AAPL) (Cramer’s Take) can go MUCH higher. It is a very strong story in a group without many good stories. … I like industrial “techs” like Eaton (NYSE: ETN) (Cramer’s Take) to any of these techs. … I firmly believe that Goldman’s (NYSE: GS) (Cramer’s Take) having a moment where it might be taking massive share and that’s why it is up nicely. … People really are buying retail off the tax rebate checks. … The McMahons got the bum rush in yesterday’s New York Times. It stated that the CEO and chairman of World Wrestling Entertainment (NYSE: WWE) (Cramer’s Take) enriched themselves with a massive dividend boost. WRONG! They boosted the dividend for the other shareholders only, not themselves. That’s why I stated they are so pro shareholder on the show! Ouch!
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com’s sites and serves as an adviser to the company’s CEO. At the time of publication, Cramer was long Goldman Sachs.
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