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Two Ways To Play: With Crude At $115, Airline Profits Clear For Takeoff


Strengthen your portfolio in good times and bad.

Bloomberg reports the retreat in crude oil may be a "game-changing event" for US airlines, according to an analyst at Morgan Stanley. Analyst William J. Green wrote today in a research report that the industry will be profitable if crude oil averages $115 a barrel in 2009. The hypothesis assumes crack spreads, the difference between the price of crude oil and its eventual products (i.e. gasoline, jet fuel, heating oil, etc.), to remain at $20 per barrel.

Companies like Continental (CAL), Delta (DAL) JetBlue (JBLU) would join Southwest Airlines (LUV) in recording profits next year said Greene. "We see significant upside in shares should oil prices and demand trends remain consistent with our model."

Green maintains an "in-line" rating on the industry.

From the Bull Pen: The decline in crude has been violent but oil could be due for a tradable bounce. USO into the 200 DMA ($87.60) could be one option for bulls.

From the Bear Cave: Have the airlines ever been able to make money? Bears might see a downside play in CAL as the stock approaches the $20 mark.
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