Profit from a Decline in the Airline Sector in Transports

Profit from a Decline in the Airline Sector in Transports

Profit from a Decline in the Airline Sector in Transports

Profit from a Decline in the Airline Sector in Transports

America today is on the verge of facing a dire shortage in an oft-overlooked commodity: airline pilots. This has been a gradually building problem, the result of slow-moving trends rather than an acute shock. But recently people, and media outlets, have begun to pay attention to what could be a genuine crisis within a matter of just months. Several factors are coming together at once to cause it. Federal regulations require that all airline pilots retire at age 65 as a safety precaution. A large cohort of current pilots is about to hit that age, taking them out of the workforce. Meanwhile, far fewer young people are deciding to become pilots than in the past, thanks to a combination of more onerous training requirements, lower pay, and tougher working conditions. With large numbers of pilots retiring and not enough coming in to fill the void, airlines are going to feel the squeeze, and will likely need to cut back on the number of flights and routes that they offer.

This is an unfortunate development that is bound to cause some serious inconveniences. But the silver lining is that it may create strong growth opportunities for companies offering other modes of transportation besides flying. People and goods will still need to be moved around this country, whether or not pilots are available to fly them in planes. The pilot shortage is most likely to affect shorter regional routes, which can be feasibly covered by ground-based transportation instead. Thus a decline in air travel is likely to correspond to a greater volume of people and goods traveling by train, bus, or truck.

Investing in ground-based passenger travel is difficult, since the dominant passenger bus and train carriers (e.g. Greyhound, Megabus, and Amtrak) are privately owned. But there are plenty of publicly traded companies that ship freight by ground, and which may benefit from a decline in air shipments. In the trucking space, I like Celadon Group (NYSE: CGI), Roadrunner Transportation Systems Inc (NYSE: RRTS), and Old Dominion Freight Line (NASDAQ: ODFL). All are attractively valued with P/E ratios in the mid-teens, earnings per share above $1, and have displayed positive medium-to-long term trends. Old Dominon in particular has seen its price consistently appreciate over the past few years, and fundamentals suggest that this gain has been justified. In the railroad space, I particularly like the Providence & Worcester Rail Company (NASDAQ: PWX). Though it is much smaller than many of its competitors, I think it’s particularly well positioned to benefit from the time we liv in. Its market is New England and New York, with Providence, RI and Worcester, MA unsurprisingly acting as its main hubs. These are precisely the sorts of small regional cities that may see their air service cut, and thus could increase demand for rail shipment. If you want a slightly less risky option, Genesee & Wyoming, Inc. (NYSE: GWR) has seen strong price appreciation recently, which has been supported by consistent year-over-year growth in revenues and profits (with only a small dip in 2008, when the whole economy tanked). It’s looking a bit overbought at the moment, but could be a great buying opportunity after a price correction.

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  1. Meiko Acebo
    meikoacebo
    Nov 29, 2012 - 01:36 PM

    Inexpensive valuations from the stocks mentioned. I personally like Roadrunner given the strong earnings it has exhibited over the last years.

    Reply
  2. mrgambale@gmail.com
    Dec 02, 2012 - 09:25 PM

    Agreed. Roadrunner had been consistent, showing growth year after year.

    Reply

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