Airlines Have More Gas Than Investors Think

Brittney Barrett |

 Among the primary challenges to airlines this year was the rising and incongruent price of jet fuel as compared to oil. The rocketing costs have been impacting fares and forcing airlines to adapt new measures in order to cope. Recent volume and the deep slide in oil prices will positively  impact airlines for the short-term; however. The leading companies remain weakened in terms of sentiment and the industry itself is historically plagued by mergers and acquisitions as well as its strong tie to the economy. At this point though, it looks like the issues facing the economy and the volatility of these stocks is already factored into the weak share prices. Several of the top airlines recently announced their decision to cut back on flying and end unprofitable or less profitable routes. The methods that the companies have used to survive the hard times will help them become even more profitable should the economy return to strength or the top travel season begins. Additionally, innovations such as Boeing’s Dreamliner, which is likely to become popularized in the coming years will help companies save money and fuel and be less impacted by the price of jet fuel as a result of the increased efficiency.

Several top carriers, even before the introduction of such prospects have expressed high demand and have returned to profitability. While it was momentarily factored into share prices, they sunk back to near previous levels alongside major equity sell-offs.

Once again airlines appear to be well priced with some stocks even at their 52-week lows in spite of expectations for rising revenue and profitability.

Among these companies is Jetblue (JBLU)-Jetblue has reported considerable traffic increases over last year and yet shares are at a 52-week low for the company. JetBlue saw strong traffic during the month of August while competitors like Delta (DAL) lost 0.3 percent and United Continental Holdings Inc (UAL), which saw a decline of 2.7 percent. Additionally, the company’s low cost structure allows it to thrive against other airlines even in a weakened economy.

Southwest (LUV)-Southwest is among the most notoriously stable airlines. It encountered troubles earlier this year after a defect was identified in one of its models. The problem was quickly resolved, but share prices plummeted and many were gun shy to return in the event of more problems. Thus far there have not been issues and the airline assured any threat of that was resolved. Beyond that, Southwest exhibited the most impressive traffic of any of its competitors. A citigroup recently suggested a buy for the stock on the basis of offering more competitive pricing and occupying the short haul niche.   In spite of this, shares of the company are at a 52-week low, far below what they were even at an earlier incident and far less impressive earnings guidance. That said, Southwest may be an appealing contrarian buy.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TGL.DB:CA TransGlobe Energy Corporation 6.00% convertible un 100.00 0.10 0.10 20,000
AAPL Apple Inc. 112.12 1.09 0.98 27,068,316
C Citigroup Inc. 60.15 1.09 1.85 32,535,971
NWSA News Corporation 11.92 0.09 0.76 1,957,806
GM General Motors Company 36.42 0.12 0.33 14,516,035
GRPN Groupon Inc. 3.89 -0.07 -1.77 20,078,912

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