Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

UAL Leads Airline Stocks' Flight


UBS upgrades buoy the stocks, but beware of the business traveler.

Airline stocks gained altitude on Friday after UBS (UBS) lifted its rating for major carriers including US Airways (LCC) and Continental Airlines (CAL).

The AMEX Airline Index (XAL) was up 2.5% in midday trading, with virtually all of its components glowing green. The index just hit a new 52-week high of $30.95 on September 22.

UBS analyst Kevin Crissey argued that the risk of carriers going belly up has diminished.

"The rally in the US airline stocks and the appetite for airline secondary issuances has meant that more capital is available to the airlines than we modeled a quarter ago," Crissey wrote, according to a Reuters report. "Therefore, near-term bankruptcy risk has diminished in our view."

The analyst upgraded five US airlines to Buy from Neutral, including AMR (AMR), Continental Airlines, Alaska Air (ALK), and US Airways. His top pick is UAL (UAUA) because he thinks that the company has the greatest leverage to an economic and corporate-travel recovery. His price target is $15.

Airlines have suffered a horribly hard time during this Great Recession as input costs rose and domestic demand collapsed. But analysts covering the industry are now cautiously optimistic about near-term prospects for the industry, citing stronger balance sheets and a stabilizing economy. There's some chance here for stock pickers to make money, analysts say, so long as they remember that airlines make for good trades but traditionally lousy long-term investments.

Trade groups for the airline industry have recently come out with sour projections for the sector. The International Air Transport Association, for instance, forecasts $11 billion in losses this year driven by weak passenger and cargo demand.

"The bottom line of this crisis -- with combined 2008-09 losses at $27.8 billion -- is larger than the impact of 9/11," said Giovanni Bisignani, IATA's director general and CEO, in a statement. "This is not a short-term shock. $80 billion will disappear from the industry's top line. That 15% of lost revenue will take years to recover."

Bisignani added, "Conserving cash, careful capacity management and cutting costs are the keys to survival. The global economic storm may be abating, but airlines have not yet found safe harbor."

Tough stuff. However, independent aviation analyst Ray Neidl says that the US airline industry is in better shape than international competitors. The American front offices of these companies have been more aggressive in cutting back capacity and costs, he says. Neidl also agrees with analysts at UBS that the likelihood of airlines going under has waned.
< Previous
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos