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Warren Buffet famously said: “The best way to become a millionaire is to start as a billionaire and buy an airline.” We fully understand the issues that any “investor” has with the airline industry, especially when it comes to applying Porter’s Five Forces to the industry and coming out with a favorable view. That doesn’t mean airlines can’t be good “stocks”, for a “Trade” - look at their outperformance today!

While Keith was giving me the gears this morning and last night when I mentioned airlines as a potential long, like any Portfolio Manager with a process should, and we are not there yet, the chart below does depict an interesting story. In the last few months, the historical inverse correlation between airline stocks and jet fuel has broken down. For many airlines jet fuel is currently ~40% of sales versus 20 – 25% a year ago, if oil, and thus jet fuel, stay at or below currently levels, the y-o-y cost comparisons all of sudden start to look very interesting.

Daryl G. Jones
Managing Director