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Airline travel to become luxury good -- analyst
September 26, 2009

High fuel prices are helping make airline travel a "mid-priced luxury good" and could help the carriers by prodding them into restructuring, an industry analyst says.Stifel Nicolaus & Co. analyst Hunter K. Keay said Thursday that many airlines will be profitable in 2009 and all airlines he covers will be profitable the year after, assuming oil prices of $115 per barrel by 2010.Keay initiated coverage with "buy" ratings on American Airlines parent AMR Corp., Delta Air Lines Inc., Continental Airlines Inc., and United parent UAL Corp.Keay said Delta would benefit from a growing international network and cost savings from restructuring and its acquisition of Northwest Airlines Corp.

He said AMR has enough cash to withstand a slump and high fuel costs.

The analyst gave a "hold" rating to Southwest Airlines Co., saying he doubted the carrier's revenue-raising initiatives would offset high fuel costs and the declining value of hedges that have insulated Southwest from the increase in fuel prices.

Keay said that U.S. airlines prudently responded to high fuel prices by aggressively cutting capacity, dropping marginal routes, and retiring older, fuel-guzzling planes without placing big orders for new ones.