The long-standing joke about the airline industry is that if you want to lose a million dollars, invest $100,000 in airline stocks. After all, the industry as a whole has been historically in the red since it started -- in fact, the overall sector has not been profitable in terms of real dollars since it started carrying passengers back in the 1930s.
But several new trends and economic tailwinds have made the airline sector worth a peek, at least in the short term. First, automation, consolidation, and other efficiencies have helped drive out costs for all airlines, not just the so-called "low cost" carriers. This makes for more sustained profitability in a traditionally cyclical industry, even during the down times.
That consolidation could be continuing. Several reports today indicate that American Airlines, the operating branch of AMR Corporation (PINK: AAMRQ - 1.37), is close to finalizing a deal to merge with US Airways Group, Inc. (NYSE:LCC - 14.97). That would create the world's largest airline and comes after American had already gobbled up TWA and US Airways had merged with America West in the last 12 years. American, which recently unveiled a new livery and logo, is still in Chapter 11 bankruptcy reorganization that started in November 2011. The Fort Worth-based carrier has rejected one previous merger offer from Phoenix-based LCC.
Secondly, oil prices have remained generally stable at just under $100 a barrel. Jet fuel costs are typically an airline's highest or second-highest cost (with labor either No. 1 or 2). And while the current prices are a bit high for an airline's taste, it's the stability in the market that makes a difference. Wild swings put fuel hedges out of whack, while stability helps an airline plan longer into the future.
And finally, the slow-but-steady pace of the economic recovery has boosted the sector overall in the last six months. In fact, the Dow Jones U.S. Airlines Index (INDEXDJX:DJUSAR - 83.25) is up nearly 30% in the last three months, and more than 45% from its six-month low in early September.
We already covered why Southwest Airlines Co. (NYSE:LUV - 11.44) may be a good contrarian play on Thursday following the announcement of its 40th straight year of profitability.
But here are three other airline stocks on the move in recent weeks:
Recent XIV Action May Bode Well for Bulls
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