Republic Airlines (RJET) upgraded to Strong Buy (RJET, LUV, DAL, SKYW, UAL, PNCL)

U.S. airlines spent about $50.5 billion last year on fuel, up from $38.8 billion in 2010, and they raised ticket prices nine times last year, largely to offset those costs and make a profit. With Gasoline prices on rise again, most airlines are busy cutting down capacity and lowering future earnings.�Southwest Airlines, the most consistently profitable U.S. carrier, said Tuesday that high fuel prices will keep it from posting a profit for the first three months of this year.�United Continental Holdings Inc. saying it plans to trim capacity.�Delta Air Lines Inc., meanwhile, cut its forecast for profit-margin growth.

With elections around the corner, Obama government is trying various options to bring the oil prices lower. They were able to reach an agreement with�Saudi's for pumping more fuel if and when necessary without hesitation.�

Airlines as a sector seem to be more motivated in being profitable rather than compete or lower fares to increase market share which is a huge change of mentality from the last few years and government seemed to motivated for bringing oil prices lower to avoid losing votes of unhappy citizens so I don't feel we would have a crisis situation. Jet fuel would average around $3.20 at maximum for the year as predicted by market gurus. That would be helpful to airlines but not much as�most airlines hedge against fuel prices by buying a sort of insurance called an option. These options allow airlines to lock in a price for a portion of their fuel for several months at today's prices. So long as prices rise, options are valuable in keeping prices more stable. But if prices remain flat or fall, options are another expense for airlines.

Republic airlines (RJET) provides a safe bet to capture the upside in the airline sector. Only airline that thinks it can generate a profit even if Oil goes to $3.50. Bryan Bedford, chief executive of Republic Airways, which owns Frontier, said in a March 1 earnings call that Frontier could have "really good margins" if fuel averaged $3.30 a gallon this year and could still be profitable at $3.50 per gallon. They have no hedges in place for 2012. They had a fantastic 4th quarter in both branded and regional flying with jet fuel averaging at $3.20. Also, they recently reported numbers for February and passenger count increased 24%.�
This is the result of recent efforts by Republic airlines $120m internal restructuring to reduce costs at Frontier. Republic airlines also announced some significant management changes at Frontier to have it operate independently from Denver and eventually either spin off or sell off the airline.�


Holding:Long Position Disclosure: Author holds position in the stock through funds.