Take the Train or the Plane?

 |  Includes: AAL, DAL, JBLU, LUV, UAUA
by: Cabot

By Elyse Andrews

In my last issue, I wrote about my many recent travels, including a quick trip to New York City last weekend. I had a bad feeling going into the trip–the weather prediction was not favorable and I felt my travels had been too good to be true so far–call it a premonition.

And that feeling turned out to be right. My flight home to Boston was canceled because of the wet weather and I was unable to get through to Delta (NYSE:DAL) via phone, email and Twitter. So I took matters into my own hands, booked a train ticket and high-tailed it out of New York.

That turned out to be a wise decision, as I was not able to get in contact with Delta until Tuesday morning, at which time they apologized and said they would refund the unused portion of my ticket.

In the meantime, I received this email from a reader that I wanted to share with you today:

United Airlines (UAUA) is one of the two worst companies with which I’ve ever had to deal in my 72 years of living. I’d rather not go some place, no matter how desirable, than fly United. Aeroflot in the 1970s was better despite my doubts (unjustified, it seems) of ever reaching intended destinations, at least in one piece. At least when you reached a destination they let you off the plane. United has been a terrible airline for decades. They don’t like their customers and the personnel are unusually surly.

Jet Blue (NASDAQ:JBLU) is one of the best but unfortunately they are not a presence in Chicago. I know little about Delta. The best airline used to be Piedmont until they were taken over by U.S. Air (LCC). Flying, in general, because of greatly deteriorated airline service and the irritation of security checks, has become so unpleasant that I find myself very reluctant to go anywhere via airlines although Southwest (NYSE:LUV) is tolerable. Only a serious personal crisis would induce me to ever again fly United. It’s hard to imagine investing in a company whose demise I so fervently desire. I used to enjoy flying.

“That doesn’t mean UAL is a bad trade but one only trades rather than invests in airline stocks since it’s an inherently unprofitable business most of the time and over the entirety of the airline business. It’s a business where one profits only by buying red ink and selling black ink; so as a trade it might work out as long as speculators don’t stick around long enough to believe that profitability, if achieved, will be sustained.

“I am anxious to see high-speed rail transportation displace the airlines. Otherwise, driving is the best choice domestically. Not traveling at all is a preferable alternative to flying United.”

Chicago, Illinois

The part of B.G.’s email that really struck me was his excited anticipation of high-speed rail travel. Despite the stresses of my last-minute trek home by train, the trip was extremely pleasant.

The seats were very comfortable and spacious. The personnel were jovial and kind. And the best part of all: I didn’t have to take my shoes off.

I would love to do more train travel myself, as it is an infinitely better experience than flying and you get to see the landscape as you get to your destination. Unfortunately, I don’t see rail travel catching on to any large degree because people are often crunched for time and traveling by train takes a lot longer than flying. Even the high-speed train to New York from Boston is two hours longer than the plane trip. (Although you don’t have to get there as early–no little baggies full of liquids to be scanned at the train station.)

All of this traveling has got me looking at travel stocks more than ever. The timing seems perfect because another travel stock popped up on my radar this week: U.S. Airways, which was always my parents’ choice of airline when I was younger. My trips on U.S. Air were generally pleasant, although I haven’t flown on the airline in a while.

Here’s what Editor Michael Cintolo had to say about the company in a recent Cabot Top Ten Report:

Though you can’t see it (yet) in the company’s sales and earnings results, U.S. Airways is strong today because there are material signs that business is picking up, and quickly. In February, for instance, total revenue per available seat mile rose 9%, a slight acceleration from January’s 3% growth, and continuing the encouraging booking trends seen in the latter part of 2009. Moreover, corporate bookings last month surged 35% from a year ago, a strong sign that businesses are beginning to open up their wallets, which can drive business for the airlines materially higher. Combine that with relatively stable energy prices (fuel is a huge cost for any airline), and that’s led analysts to forecast huge jumps in earnings this year ($1.18 per share this year). No one will argue that airlines are great long-term growth companies, but the sector is in the midst of a profitable turnaround today, and stocks like U.S. Airways are reflecting that.

LCC is low priced, but in terms of dollars traded per day, it’s very liquid; shares trade an average of nearly $100 million each day. And much of that trading of late has been buying–LCC has risen seven weeks in a row, a sign of persistent demand, and we like that the advance has been relatively steady, with few bears able to put up much of a fight. That said, the 50-day line is down around 6.3 (and rising), so we feel that buying on weakness is your best bet.

If you decide to buy LCC, keep in mind that in addition to being an airline stock, it’s low-priced, so it’s likely to be more volatile than stocks priced over 10. As I said last week, I wouldn’t bet the mortgage on an airline stock, but in the short term, they could turn out to be quite profitable.