Can Southwest Profits Survive as the AMZN of the Airline Industry if …

Oil spikes?!  This author believes there is too much competition for it’s mass market margins as the economy, depicted by consumer durables lackluster performance as automakers (which are also short candidates) and retailers flooded the pipeline and now have to resort to layoffs or closing stores to accelerate shareholder value.

As the platitude says, the trend is your friend and today, 1/5/17, LUV is down -$0.77 or -1.5% and GM is down -$0.78 or -2.10%.

Crude Oil for June delivery in Japan is up 0.79%, Kerosene for July delivery in Japan is up 0.99%.

Since jet fuel and salaries are the highest costs for the airlines, as the saying goes, “Don’t fight the Fed”, and the Fed has already signaled 2017 rate hikes to stem the cost of the 12 Days of Christmas which includes the minimum or sub-par wages that flight attendants and counter staff that manage baggage and ad-hoc ticket purchases.

Auto makers, on the other hand, can absorb a spike in oil prices by shifting sales of SUVs to Hybrids and Sub-compacts. Airlines have some flexibility by raising airfares, however, airfares are inelastic because they result in empty flights.

For Speculative Accounts Only, buy the LUV $49 3/17/17 Puts @ $1.85 or simply short the stock. Reiterate buy on CHK, through 7/21/17 $8 Calls or more risk seeking 7/21/17 $9 Calls or simply buy the stock.

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