Airlines among Strongest Stocks in 2014

Daily Herald (Arlington Heights, IL), September 7, 2014 | Go to article overview

Airlines among Strongest Stocks in 2014


Byline: David Koenig AP Airlines Writer

Airlines among strongest stocks in 2014

DALLAS -- You just spent a small fortune on airline tickets -- and the extra charges for the bags -- for your family's summer vacation. All your flights were packed with other passengers who also paid richly for the ride.

No wonder airline profits are sky-high.

Back home now, you might ask if you can share in the airlines' good fortune by buying their stock.

The answer: maybe you can, but you missed the big payoff.

Airlines have been among the strongest stocks so far in 2014, easily beating broad measures such as the Standard & Poor's 500 index and the Dow Jones industrial average. Since late 2011, when speculation sprouted about a merger between American Airlines and US Airways, the Arca airline index has soared 186 percent. During that time frame, Delta Air Lines Inc. shares have risen fivefold, Southwest Airlines Co. shares have more than quadrupled, and United Continental Holdings Inc. has nearly tripled.

In the same period, the S&P 500 rose 68 percent, and the Dow gained 48 percent.

Most U.S. airlines have recovered fully from the one-two combination of record-high oil prices and the recession, which staggered them in 2008. Profit at nine leading U.S. airlines more than doubled to $3.8 billion in the first half of this year, compared with a year earlier.

A growing U.S. economy should encourage air travel, and many economists expect growth of around 3 percent in the second half of this year, up from 1.1 percent in the first half.

Still, the carriers will be hard-pressed to keep growing profits. Delta said Wednesday that revenue for every seat flown one mile -- an important statistic in the airline business -- grew 2 percent in August, a slowdown from earlier this year.

Savanthi Syth, an analyst with Raymond James, said that investors considering airlines must keep expectations in check.

"The bear case would be that the big improvements are done, and earnings growth is going to slow," she said, noting that it will be hard to repeat the returns of the last two years unless the economy booms. Even so, she thinks there are still potential gains for airline stocks.

Analysts who have seen their longtime faith in the airlines rewarded during past two-plus years say this is no time to sell. …

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