Does Airline Terror Present Buying Opportunity?
The short answer is no.
"You have to be lucky all the time. We only have to be lucky once."
-- Statement released by the IRA after a 1984 assassination attempt on British Prime Minister Margaret Thatcher
After Abdul Farouk Umar Abdulmutallab failed in his attempt to blow up a Northwest Airlines (DAL) plane on Christmas Day, does the current dip in the sector signal a cue to take a look at airline stocks for a quick trade?
The short answer is no.
Northwest parent company Delta Air Lines dipped almost 3% in early trading today. American Airlines (AMR) dropped 2.7%. Continental (CAL), US Airways (LCC), and JetBlue (JBLU) were all trading down between 2-3%. And United (UAUA) slid about $3 a share.
Some say the play here is to snap up shares of the big carriers when they get the stuffing knocked out of them and to then sell the inevitable spike.
Greg Collins, CEO of Fountain Hill Investments, LLC, says, "I've traded the airlines recently but I wouldn't overstay my welcome in the group which is now up over 150% (on the XAL) from the lows."
However, Collins adds a caveat: "I wouldn't say the picture is good -- it's just 'less bad.' "
Denver-based money manager and Minyanville professor Vitaliy Katsenelson doesn't like the industry as a whole. He says, "It is well documented that the airline industry as a whole has lost money over its cumulative existence."
Consumers love low fares, but investors don't, which is why Katsenelson went on to say, "Fly, don't buy."
Minyanville professor Terry Woo agrees.
"Airlines have never been able to make money."
And he doesn't think the recent terrorist attempt makes them any more attractive, even as a short-term play.
"It's never a good time to buy the airlines," Woo said. "It's just a horrible industry."
Reuters reported that "renewed terror concerns and potentially tighter airport security measures could dampen business travel demand just as it recovers."
A commenter on the Atlantic Monthly website wrote: "You can't turn a profit servicing only those who absolutely have to fly. Businesses are already doing more and more tele/web-conferencing as it is."
On Sunday, the day after the attempted attack, Homeland Security chief Janet Napolitano said that "the system worked."
On Monday, she said the system "didn't work in this instance."
Trouble is, we're always fighting "the last war," as the saying goes. The US airline industry, which lost $23.6 billion in 2008, is now facing even more of a challenge to profitability.
As a result, passengers will now be inconvenienced further, as they're forced to succumb to lengthier and further regulations, which will ultimately prove as ineffective as the one mandating shoe removal at security checkpoints.
What we need are smarter regulations, not more of them.
In the 1980s, Islamic terrorists convinced a German national who had recently been released from prison to smuggle a suitcase full of drugs to Israel. They flew to Zurich, bought him a ticket to Tel Aviv, and off to the airport he went. The highly-trained El Al screeners noticed that the man's ticket was purchased in Switzerland and questioned him as to why he didn't buy it in Germany, where he lived. Unable to come up with an answer, his luggage was searched, and no drugs were found.
But ten pounds of explosives were.
This sort of intelligent security results in actual safety, not a flimsy facsimile that does more harm than good. No iPods allowed during the final hour of your flight? No trips to the lavatory? No pillows or blankets?
The only thing that could possibly seem more asinine than imposing sudden, arbitrary regulations on the traveling public would be to publish secret Homeland Security screening documents online for all the terrorists in the computer-literate world to see.
Oh, wait -- they already did that?
Yes, ladies and gentlemen. Our vaunted Department of Homeland Security posted a 96-page document on the Internet that details pretty much everything you need to know in order to foil airport security.
Forget for a moment that each page bears the following statement:
Warning: This record contains sensitive security information that is controlled under 49 CFR Parts 15 and 1520. No part of this record may be disclosed to persons without a "need to know," as defined in 49 CFR Parts 15 and 1520, except with the written permission of the Administrator of the Transportation Security Administration or the Secretary of Transportation. Unauthorized release may result in civil penalites or other action. For US government agencies, public disclosure governed by 5 USC 552 and 49 CFR Parts 15 and 1520.
The guidelines were "redacted" in the original posting by the TSA. What they failed to realize, however, is that copying a blacked-out portion of a PDF and pasting it into a Microsoft Word document undoes the all-important blacking-out part of the redaction. Ergo, no redaction.
Want to figure out how to get into the so-called "sterile area" of an airport, presumably accessible to passengers only?
Look no further than section 2.10:
Individuals Authorized Access Into the Sterile Areas:
A. Ticketed passengers
B. Standby passengers with a valid travel authorization
C. Aircraft operator employees presenting valid aircraft operator ID
Reasonable enough. But, check this out, a few lines further down in the "secret" document:
J. Aircraft operator club members and visitors sponsored by a member
Got a buddy who belongs to the American Airlines Admiral's Club? C'mon in! There are cheese cubes and crudite platters waiting to be eaten -- and it doesn't even matter if you have a ticket.
Well, what about getting past the metal detectors? Surely, anyone headed into the terminal needs to get past the magnetometer. Oops, there goes that "secret" document again, spilling the beans on how they're calibrated (and thus, how to beat them) in section 3.1.
Of course, one could always simply hide their explosives in a pair of orthopedic shoes or a wheelchair cushion -- neither of which have to go through mandatory inspections, according to section 1A-2:
Screening Options for Individuals
ETD searches are not required for:
a. Wheelchair and scooter cushions
b. Footwear of disabled individuals that cannot be removed
c. Prosthetic devices, casts, or support braces
d. Orthopedic shoes
Lest we forget that the bulk of the 9-11 hijackers were Saudi nationals, the TSA's guidelines only require extra screening for travelers holding passports from Cuba, Iran, North Korea, Libya, Syria, Sudan, Afghanistan, Lebanon, Somalia, Iraq, Yemen, and Algeria.
Then, just to be sure that our borders are as insecure as possible, the Department of Homeland Security was kind enough to provide a sample CIA credential for TSA screeners to get acquainted with -- and for would-be hijackers to quickly and easily whip up a counterfeit of their very own:
So, while Vitaliy Katsenelson says investors should "fly, not buy," in light of today's airport security, people might simply be better off not doing either.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
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