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 The Brancatelli File

joe TWICE THE PAIN:
BAD SERVICE, PLUNGING STOCKS


BY JOE BRANCATELLI

September 11, 1998 -- I am always amazed by the inventive, and sometimes downright perverse, ways in which frequent flyers maintain their equilibrium on the long, hard road of business travel.

Consider, for example, this encounter from the spring, that long-ago time when airlines weren't on strike, when the average American could believe his president when he wagged his televised finger in our collective face, when the stock market was rolling along, and the only thing we had to fear was profit-taking itself.

I was waiting out another delay at an airport club in Chicago and fell into a conversation with a traveling salesman. (Honest, he was!). His scheduled flight had been canceled, the airline hadn't protected him on the next flight out and now he was now cooling his real and metaphoric heels after being waitlisted for a departure three hours hence.

Was he angry? Did he slump, Willy Loman-like, into the seat at our little table in the corner of the club? Did he howl against the unfairness of his life and the fact that his canceled flight meant he was going to miss a crucial dinner in Des Moines with his biggest account?

Quite the contrary. He was almost delirious with joy because he had just gotten off the phone with his broker. His portfolio, heavily laden with airline stocks, had enjoyed another record-breaking week.

"It's how I put up with all the crap the airlines throw at me when I'm traveling," Phil said.

"What do you mean?" I asked dimly.

"Well, I figure it this way," Phil explained. "Whenever an airline treats me like this, I assume it's because they're cutting costs. And since I get treated like this on all the airlines, I figure they're all cutting costs."

"I still don't get it," I said.

"Look," he said, "if the airlines are going screw you, take advantage of it and own their stock. You might as well benefit by being a shareholder who profits by the way they treat their customers.

"Oh, " I said, groping to follow the logic. "Since the airlines give us rotten service, they make huge profits and you get yours back on them by investing in them."

"Bingo!" said Phil with a broad grin. "I figure whenever they screw us, the money they save goes right to the bottom line and I'm there to pick up the profit. "I'm up 75 grand this year alone just on the airlines."

I was happy for Phil. I'm happy for any business traveler who can find solace and profit in a canceled flight and a busted dinner appointment with his biggest client. I also know a lot of frequent flyers like Phil. They are heavy in the market and they invest in what they think they know: airlines, hotels, car-rental firms and other segments of the travel business.

But that, of course, was then and this, unfortunately, is now, when airlines strike, presidents lie and we are deep in a stock-market correction. Now you not only get rotten airline service, you've gotten the tar beaten out of you if you've stuck with the airline stocks.

As you can see by the chart below, most of the major U.S. airlines and the widely held international carriers are trading near their 52-week lows. Their declines have been precipitous even by the whirling dervish standards of the late-summer market.

EATEN BY THE BEAR: HOW AIRLINE STOCKS HAVE TUMBLED

AIRLINE

SYMBOL

52-WK LOW

52-WK HIGH

CLOSE (9/9)

DECLINE*

AirCanada

ACNAF

$3.75

$10.18

$5.00

50.88%

Alaska

ALK

$29.37

$62.56

$34.50

44.85%

AmericaWest**

AWA

$13.50

$31.31

$14.31

59.29%

American***

AMR

$48.81

$89.93

$53.93

40.03%

BritishAirways

BAB

$70.56

$114.75

$73.00

36.38%

Continental**

CAI.B

$35.75

$65.12

$38.56

40.78%

Delta

DAL

$91.00

$143.62

$95.31

33.63%

KLM

KLM

$30.68

$49.68

$32.75

34.07%

Northwest

NWAC

$25.50

$65.31

$26.50

59.42%

Southwest***

LUV

$12.56

$22.37

$19.56

12.56%

TWA

TWA

$5.68

$15.12

$6.31

58.26%

United

UAL

$56.00

$101.75

$62.12

38.94%

USAirways

U

$28.43

$83.75

$50.18

35.80%

*Compared to the 52-week high **Class B ***Reflects a 1998 stock distribution

The Dow Jones industrial average closed Wednesday at 7,865.02, down 15.8 percent from its July 17 record high of 9,337.97, but airline stocks have fared much worse. The strike-bound carriers, Air Canada and Northwest Airlines, are down more than 50 percent from their 52-week highs. America West and TWA are down almost 60 percent. Even the present darlings of the airline sector (Continental and AMR, the parent of American) are each down 40 percent.

After the market closed Wednesday, I dug out Phil's business card, called him at his office in Pittsburgh and left a message on his voice mail. He called me back from an airline club in Los Angeles.

"Tell me you got out before the airline stocks went in the tank," I said.

"I wish," came the reply, which sounded a little Willy Loman-like.

"So what are you gonna do?"

"What can I do?" he answered. "I'm going to hold on. I can't stand the thought of getting treated like garbage on the road and not getting a profit from it."

A note to readers: Joe Brancatelli does not own or invest in stocks related to the travel industry.

This column originally appeared at biztravel.com.

Copyright 1993-2004 by Joe Brancatelli. All rights reserved.