Imperial Capital analyst Bob McAdoo released a report this week explaining what he sees as flawed logic used by the market in valuing airline stocks. While many airline investors focus on the industry-specific revenue per available seat mile (RASM) metric, McAdoo believes that the best indication of the performance of the airliners is good old-fashioned profits.

The Rise Of RASM

Back when oil prices were around $100/bbl, the airlines focused on cutting capacity and improving RASM in order to improve operational efficiency, maintain adequate margins and generate profits. Analysts and investors became focused on RASM, rather than profits, as an indicator of the strength of the airlines.

Cutting Capacity

McAdoo explains…

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