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Losing RJ Service 2

I was getting caught up on reading the week’s News Gazette and saw an Editorial on this topic. I guess that my head was in the sand on this topic and it is a lot closer to reality than I had thought.

There have already been 30 communities that have lost their airline service, and U of I Willard is on the list of 150 others to potentially lose its service; United has already officially terminated jet service between Bloomington and Chicago.

A healthy and well functioning airport is a driver of economic growth to a non-hub community. The current economic downturn that has been less severe in communities like Bloomington and Champaign could intensify significantly if we lose jet service (or all air service for that matter).

The airlines are in trouble; they have been for years. Cheap travel by air is likely going to be a thing of the past (although I just booked a trip to Martha’s Vineyard – Indy to Providence for $289 – a great deal that surprised me) unless the airlines can get their cost structure under control.

With oil at today’s levels that will likely not be happening.

From an investment perspective, this is one of those things that could easily lengthen the duration of the current bear market (which probably started a decade ago, not two weeks ago given that the S&P 500 has not increased in value in a decade – see the graph above).

If you are an investment manager, it is more important than ever to pay attention to earnings growth and valuations if you are going to make money for your clients. Investing in equity securities is supposed to provide protection against inflation, providing a long-term positive return above inflation. With inflation approaching 5%, you cannot employ a strategy that is based on Index Fund investing in spite of all the hype around low costs. This includes investment managers that simply try to mimic the return of their benchmark, which most often is the S&P 500 Index – a pretty low hurdle given the chart above.