NEW YORK: As the stocks of major US airlines recoup more of their losses, some investors are tempted to bet that the revival might be for real.
Record fuel prices forced airlines to become more efficient by cutting routes, capacity and jobs, raising fares and introducing fees for checked bags and other services. But crude oil prices have fallen from a record high above $147 in July to around $100 on Friday, taking most major airline stocks off the critical list and into recovery.
Shares of American Airlines parent AMR Corp fell from $26 last October to $4 in July, but have since climbed to over $12. Continental Airlines Inc. stock fell from $37.79 in October to $5.91 in July but has climbed back to over $18.
Veteran stock picker Don Hodges, president of Hodges Capital Management, owns shares in both AMR and Continental and believes there is money to be made in some airline stocks. “Overall, over the last month, airlines have made us money,” Hodges said, adding that management has taken steps that should have been taken years ago. “They have cut back on unprofitable flights ... and they are charging more for tickets and charging for baggage and the chips they serve you,” added Hodges.
In the summer, most US airline stocks were considered by many to be too risky for long-term investors, fit only to be “trading vehicles” for professional traders and speculators who can profit from short-term price movements.
But barring another spike in oil prices, some believe that airline stocks might now be worthy of wider interest. “Airline equities deserve a closer look from an ever-broadening potential investor base,” said J.P. Morgan analyst Jamie Baker in a research note.
Most US airline shares are still way below their 52-week highs — with many investors still nursing huge losses — but the stocks have rebounded well from their lows. United Airlines parent UAL Corp.’s stock plummeted from $51.60 last October to $2.80 in July but has climbed back to around $13. Delta Air Lines Inc. slumped from $21.10 in November to $4 in July but now trades at over $9.
