Too early to buy

Too early to buy - T oo early to buy? Malaysian Business,...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Too early to buy? Malaysian Business , Oct 1, 2008 by James S IS IT TIME TO POP THE champagne for airline stocks? Share prices of airline companies had been sold down heavily since last year as crude oil prices soared to a record high of US$ 148/barrel, lifting aviation jet fuel prices in the process to its similar high. However, the commodity's price has since fallen substantially and fell to as low as around the US$ 90/barrel level recently before settling at around US$ 104 at the time of writing. Given that the rise in crude oil prices was the dominant reason for the sell-down of airline stocks then, with its current decline, should investors buy back airline stocks as a counter-play to the falling crude oil prices? If so, then Malaysian Airline System Bhd (MAS), as the listed national carrier, can certainly be a stock to watch in the next few months. As it is, its share price has already moved up from its recent low of RM2.96/share back in January to the current price of RM3.50 (see Chart 1). Could the share price move further up in the months ahead? While this is a possibility, analysts are, however, still unconvinced of a big rebound in aviation stocks in the future, and as such, MAS is still not rated as a `buy' among most analysts despite it benefiting from the falling crude oil price. Why the continued pessimism? Demand the party spoiler Well, it would seem that most analysts now fear that the aviation industry would be hit with falling travel demand, given the economic crisis now plaguing the developed economies. According to a recent comprehensive report by local research unit AmResearch, the International Air Transport Association (IATA) has recently issued a grim warning on the industry, indicating potentially deepening losses for the airline sector this year. Its new forecasts see the airline industry's 2008 losses at US$ 5.2 billion versus the previous estimate of US$ 2.3 billion. This is largely attributable to expensive fuel prices, which is still 64% higher year-on- year (y-o-y) despite the recent softening crude oil prices and faltering demand. According to the research house, although the increase in the price of crude oil has been a feature of the industry since 2004, it has all the while been cushioned by efficiency gains and rising consumer confidence that supported robust demand. The broadening impact of the current economic crisis in the United States, which has spread to other developed economies such as those in the Eurozone, has, however, brought this trend to an end. Air travel demand lowest in five years
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 02/20/2011.

Page1 / 4

Too early to buy - T oo early to buy? Malaysian Business,...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online