Fuel Key to Transport Recovery
DEBORAH MARCHINI, CNN ANCHOR: As you saw, the markets rallied yesterday. It's Dow transports, though, that posted the biggest gain, 2.6 percent for the session. A lot of analysts predict oil prices have probably peaked.</s>DAVID HAFFENREFFER, CNN ANCHOR: And that is great news, of course, for companies like FedEx, which reports earnings this week. Our Christine Romans joins us this morning with more.</s>MARCHINI: Hi.</s>CHRISTINE ROMANS, CNN CORRESPONDENT: Hi, there. Well, as there is this perception in the markets that oil prices, perhaps, have peaked, at least for the time being, you're starting to see the Dow Jones transportation index bounce back. Now, it had been a really rough 1999 for the Dow Jones transports. If you look at a chart, you can see it was just a very steep decline for the transports, in large part because, you know, they have to put fuel in these planes and in all of these trucks and whatever it takes to move goods across the United States. And that has been a real problem for many of these. You can see that over the past 52 week, the Dow Jones transportation index is down 20 percent. But, look at that little red line at the end. That is the bounce that we've seen of late. And that's coming amid these expectations that oil prices perhaps have peaked. Now, fuel is the key here going forward. Depending on which analyst you talk to, 10 to 15 percent of airlines in particular, their bottom line is fuel costs. So, as these fuel costs come down, that should be better news for the airlines, although some analysts are saying their long-term worry for the airlines is labor, higher labor costs. And because, in terms of labor disputes, higher wages seem to be sort of the way that -- the direction that they are going in. But there are some values, some airline analysts are starting to say, perhaps, in the airline sector, names like Southwest, you keep hearing bantered about. But John Manley, our guest, who is going to come on later, says that he's not very interested in the trasport sector at all.</s>MARCHINI: Tell me something, because up from the anecdotal evidence from what I have read and seen, it seems like the transportation companies, be they truckers or airlines, anything but air freight, has had trouble passing along the higher fuel costs to the end users, but it's got to put a squeeze on profits.</s>ROMANS: Exactly. Their margins are very, very thin, and, as John Manley was just telling me, they're very capital intensive. He said in airlines in particular, you know, the last couple of passengers to board a flight determine whether that flight's going to be profitable or not. And that's just a really -- that's a very close way to do business, for his taste at least. And -- but, there are people who say that these -- some of these stocks are so beaten down that there is some short-term value there. There is an analyst over at ING Barings who says that maybe there's a beginning of a two-month rally for some of these airline stocks, just given the levels that they are and its -- oil prices are going to come down.</s>HAFFENREFFER: Now, all of this comes in advance of the OPEC meeting, which is coming up on Monday. And are we likely to see a sort of buy-on-the-rumor, sell-on-the-fact move?</s>ROMANS: Well, that will be interesting. It depends on what comes out of that OPEC meeting because we -- I have, exactly as you said, we've already seen the market starting to anticipate that they are going to open the spigot; in fact, those stockpiles already showing that there are more oil on hand -- more reserves on hand than people had thought. So, that's definitely good news. But, you know, the way the markets work, you know, when you start to see the actual events, then, you know, you can start to pull back if there's already been some -- you know, earnings are going to be important going forward here, too. FedEx reports this week; that's a big one, sort of a bellwether in terms of the shippers. Good economy is good for FedEx. You can see that 34 cents a share is what they're looking for, compared to the 26 cents a year ago. And don't forget: oil prices have been rallying. So, it will be interesting to dig into FedEx's numbers when they come out, and see how they've been able to get by with the higher oil prices.</s>MARCHINI: Yes, these are a barometer of economic activity, tells us the same thing a lot of other indicators tell us, which is that nobody thinks the Fed is slowing anything down any time soon.</s>ROMANS: Exactly.</s>MARCHINI: All right, Christine, thanks. Search CNN.com CNNSI.com CNNmoney.com The Web