Bullish on an Airline company? Yes, indeed. The thing is, Republic does most of their flying for other airlines. It's more or less like outsourcing in the airlines industry. An obvious argument could of course be that the outsourcers in the airline industry will be the first to suffer from the reduction in flight movements that is currently happening. But an equally supportable argument could be that the outsourcers would in fact be the last ones to suffer.
First of all, the airlines using the outsourcer gain flexibility. They can easily play with their flight movements, since they will not have to suffer the consequences in terms of lay-offs, recruitment, material, purchasing of extra planes, loss of efficiency, etcetera. So instead of making less use of outsourcers, my view is that in difficult times, they will even make more use of outsourcers.
Secondly, the oil price should have less impact on an outsourcer. They would, I imagine, work with fixed contracts, or simply would charge the hiring airline more for fuel cost.
On top of that, the results for the past years look very good, especially compared to others in the industry, the stock looks undervalued to me with low P/E numbers and a healthy free cash flow. In my view, this one will soar.
$7.39 (07/16/08)
