Even the casual observer of the U.S. airline industry can see why this sector of the economy has been under pressure. Rising gas prices, increased security and lingering consumer complaints have dealt more than a few blows to this once venerable investment opportunity. Yet despite these challenges, there are still openings for savvy investors to ascertain whether or not a particular airline is worth investigating.
According to Neha Pandey, a finance writer for Rediff Business, an online news source, there are several fundamentals that people should inquire about before making a final investment decision. These considerations are based on pure economics and can actually be applied to a number of other transportation industries.
Energy costs are at the top of the list. Fuel represents a big chunk of an average airline's operational expenses and, given the fluctuations in the price of a barrel of oil during the past ten years, one can see why a carrier would be under financial strain.
These variations can also put a strain on an aircraft company's debt portfolio, which is itself a potential source of concern. Airlines that have undergone recent bouts of borrowing might be forced to cut back on services or increase fees, actions that may result in customer backlash.
Stock price performance is also a good indicator of investment risk, as this sector is more exposed than most to macroeconomic shifts. Delta Airlines [DAL], for example, has been experiencing positive price development since the end of April and, according to SmartStop's Risk State Assessment, has seen normalized levels of risk for both aggressive and conservative investors.
Ultimately, those who decide to buy airline stocks should be aware of the unique risk factors that can affect this sector, especially during times of economic turbulence.
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