Money & Investing
Airline Stocks: Once Grounded, Now High Fliers --
A Look at US Airways and Alaska Air Group
Oh, how times change. Several years ago, it seemed airline stocks were fighting for their survival. However, things have changed for the better. Several airline stocks are top performers and lighting up investor radar screens.
Like many stocks, the airlines suffered through the bear market of late 2007 through early 2009. When the stock market turned, the airline stocks lifted, too. It was a classic case of the market starting to discount in advance the new profit potential of the airlines.
The chart of the airline industry index versus the S&P 500 index shows how well the airlines have performed since the start of the new bull market.
The airlines have soared 100 percent versus a 30 percent gain for the S&P 500 since early 2009.
Investors now need to ponder two key questions:
1. Can the airline stocks continue to outperform?
2. Who are the key performance leaders in the group?
A good general guideline to keep in mind when investing is that there are three variables a bullish investor wants to have going for him or her:
1. A rising stock market
2. An outperforming industry group
3. A leading stock in the top group
The Air Transportation Association reported that air passenger revenue in January rose 1.4 percent. That ended a 14-month decline in traffic. That appears to be the turning point for the industry.
Analysts said the increase in passenger revenue was due to capacity reduction, cost-cutting moves made in recent years and the elimination of the least-fuel-efficient flights.
Here are the top NYSE performers this year among the airline stocks.
Leading the fleet is US Airways Group, Inc. (LCC), whose stock has appreciated 96 percent this year. It has climbed from 4.66 to 9.58.
However, US Airways was a 60-dollar stock back in early 2007. The stock had a big tumble. So, there could be more to go on the up side -- provided the company does well on the bottom line.
This year, analysts forecast US Airways’ net will surge 196 percent to 1.98 a share from 67 cents a year ago. The stock sells with a price-earnings ratio of just 5. That would appear low.
Going out to 2011, Wall Street looks for a 37 percent gain in net to 2.72 a share from the anticipated 1.98 in 2010. Give US Airways a P / E ratio of 8, and the stock has a valuation of 21 based on 2011 net -- not bad…if they come through.
US Airways, with revenues of 10.7 billion dollars, is a holding firm. Some of its units are US Airways, Piedmont Airlines and PSA Airlines. It has 349 planes in its mainline fleet.
Generally, when an industry group is strong, the leader can be identified by the fact that it is the one making multi-year highs, and it is often the first to break out from technical stock basing formations when the group goes on the move.
Fitting that profile is Alaska Air Group, Inc. (ALK). The stock peaked at 45.85 in late 2006. It then went into a dive with the bear market falling to 10 dollars in 2008. However, it has since rallied strongly and recently made a 10-year high, getting to 54.13. The stock has shown a tendency to be the first to move higher when the airlines go on a move.
Alaska Air, with revenues of 3.5 billion dollars, has two units, Alaska Airlines, Inc. and Horizon Air Industries, Inc. The company’s annual traffic is running at 22 million passengers going to 90 destinations. It also handles freight and mail service.
This year, analysts forecast Alaska Air’s net will jump 158 percent to 6.33 a share from 2.45 a share in 2009. The stock sells with a price-earnings ratio of just 7 dollars. Next year, The Street is expecting just a 3 percent gain in net to 6.54 a share.
Among other airline stocks doing well is United Airlines, which has surged from 3.07 last year to 22. It is making a big come-back. This year, earnings are projected to come in at 4.19 a share compared with a loss of 7.49 a share a year ago.
Also, Delta Airlines’ (DAL) stock has taken off from 3.51 last year and is now cruising at 12.66, and Southwest Airlines Inc. (LUV) has climbed from 5 to 11.84.
Mr. Fasciocco is the publisher of Ticker Tape Digest at www.tickertapedigest.com. He is a contributing writer for several publications. Mr. Fasciocco can be reached at leo@tickertapedigest.com.
