Why You Have To Avoid (or Short) This Industry?

The August CPI in the United States, which was announced yesterday, rebounded once again, and two consecutive months of rebound have heightened market risk sentiment. Both the year-on-year and month-on-month increases in overall and core CPI exceeded expectations.

Among them, energy costs became the largest contributor to the growth of US CPI in August, accounting for more than half of the CPI increase, and the significant fluctuations in oil prices may also require European and American countries to maintain high interest rates for a longer period.

Some categories related to energy, such as transportation, have surpassed housing for the first time and become the biggest driving factor for core CPI. In the core CPI, housing inflation is significantly declining, and the slowdown is becoming more pronounced, which is related to the market's previous expectation of a "delay."

However, if high-interest rates continue, housing inflation may still remain at a relatively high level (rental yield ratio). The only factor left to ease CPI is that residents have exhausted their savings (no more money!).

This trend has already been reflected in the aviation industry $U.S. Global Jets ETF(JETS)$ Bearish.

1. Macro-economic factors (e.g., geopolitical impact)

2. Slower U.S. domestic demand (this year's bookings are far lower than last year, possibly related to the end of the post-pandemic demand surge)

3. Rising fuel prices (oil prices are rebounding).

Therefore, including $American Airlines(AAL)$ , $Spirit Airlines(SAVE)$ and $Frontier Group Holdings, Inc.(ULCC)$ among others, three airlines have issued profit "warnings" and lowered profit levels.

If revenue cannot support the increased costs, does it not affect profits?

Although $United Continental(UAL)$ and $Delta Air Lines(DAL)$ have not made any noise yet, the headwind effect may give them a competitive advantage, but the overall trend in the aviation industry is consistent. If any airline performs exceptionally well, it is because of their outstanding operational capabilities, including but not limited to:

1. Perfect oil price hedging.

2. High passenger loyalty and industry-leading load factors.

In fact, this also gives some insights to domestic airlines in our country: Don't be fooled by the explosive demand for travel in the first year after reopening this year. Once the novelty wears off and too much savings have been spent due to high ticket prices, it won't be so easy to maintain this kind of growth in travel in a couple of years.

It's best to stay away from the North American transportation industry in the short term, and the OTA companies associated with it $Booking Holdings(BKNG)$ $Expedia(EXPE)$