Update Lan Airlines (LFL)

This deal is a huge expansion for Lan Airlines (LFL) that will turn Chile’s national airline into a truly South American airline.

Lan will buy Brazil’s Tam (TAM) for $3.7 billion. Shareholders of Lan will own 70% of the combined company. (Tam will be delisted and the new shares for LATAM Airlines will trade in New York, Santiago, and Sao Paulo.)

The acquisition will make Lan, with strong routes and market share in Chile, Peru, Argentina, and Ecuador, a dominant player in the Brazilian market. (Tam had about 42% of the Brazilian domestic market as of the end of the second quarter of 2010.) Tam’s revenue last year of$4.9 billion was greater than Len’s revenue of $.37 billion.

I’ve got three reasons to like the deal. Read more

And this is what a good year for the airline industry looks like

How bad a business is an airline?

Stunningly bad. Especially if we’re talking about an airline serving one or more of the world’s developed economies. All you have to do is look at what a recovery in the industry looks like.

The International Air Transport Association (IATA) is calling 2010 a recovery year for the industry. Global airlines in aggregate will actually make a profit in 2010. That would make 2010 the third profitable year for the industry during the last 10.

In the first quarter of 2010 cargo volumes climbed 26% from the first quarter of 2009 and what’s called premium travel volumes (the seats that aren’t coach) rose 20%.

On a global basis airlines will make $2.5 billion in profits this year, the IATA projects.

But the recovery isn’t spread evenly across the world. Airlines in emerging economies are, by and large, doing better than fine. U.S. airlines are projected to make $2 billion in 2010. But European airlines are forecast to show a $3 billion loss for the year.

But to understand exactly how bad this business is, in aggregate, you need to take a look at the miniscule margins that $2.5 billion in global profits represents. Read more

Psst, want to buy a used airline?

Why I will never be a momentum investor. Or a trader.

I just can’t bring myself to say “Fundamentals don’t count if the price trend is good enough.”

Continental Airlines (CAL) has come up two of my screens in the last few days as a buy on its price momentum. It came up earlier in mid-September—on September 21 to be precise—when the stock crossed above its 50-day moving average.

It traded at $16.81 that day. It’s at $23.10 as I write this around 3 p.m. ET on March 12. That’s a gain of 37%.

But I just couldn’t buy the shares. Nothing against Continental but the economics of the airlines industry are just so horrible that a couldn’t get them out of my mind long enough to buy this stock.

Oh, well. As the scorpion said to the frog as they both sank to the bottom of the river, “It’s my nature.”

I love this little summary of the industry from the Financial Times this morning: Since 2001 the world’s airlines have flow 18 billion passengers, collected revenue of $3.75 trillion, and produced a net loss of $14 billion. Read more