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The last couple weeks have not been kind to US airline stocks as both Mother Nature and investors have thoroughly beaten down them down.

Hurricane Irene cut into US Airways’ operating income by as much as $10 million while Delta’s August net profit cost it $15 million in monthly net profit. (source)

On Tuesday, fears of a second U.S. recession sent airline stocks plummeting as air travel outlook looked weak. Globally, the airlines’ second quarter financial results have declined by 60% while fuel prices are up 50% from last year. (source)

But, is the latest fall grounded in reality?

Looking back, it’s certainly been a challenging decade for airlines since 9/11. US airline revenue fell $23 billion from 2000-2002. Between December 2002 and October 2005, United, Delta, Northwest and US Airways filed for Chapter 11 Bankruptcy Reorganization.

The restructuring that took place over the decade improved productivity, fuel efficiency and reduced accident rates while passengers increased by a billion more people and 16 million more tonnes of cargo was moved. (source)

However, the restructuring among the airlines as well as an influx of passengers has not entirely improved the underlying business of the airlines or made them safe investments.

As Osborne notes, there’s a lot that can go wrong since the airline industry is highly competitive while ticket prices must also increase with the cost of fuel, which responds to a myriad of different disturbances.

We’ve taken a different cut at the airline stocks by looking at 10 years of financial statements for US Airways, JetBlue and Southwest Airlines and uncovered disappointing financials that have not improved over the years.

If you’re looking at airline stocks, we hope that this will be a good starting point for your analysis.

US Airways (LCC)

A look at US Airways’ fundamentals has shown that they have historically been disappointing. Its financial strength remains weak as shown in their balance sheets where TL-to-TA has hovered around 0.88 – 1.75 since 2001. They have also found it difficult to retain its profits while positive free cash flow has been virtually non-existent up until 2009.

(Click charts to expand)

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According to its Growth Price (FCF), LCC is currently undervalued by 375.90%. If LCC can turn it around, then the current price is of great value. But, given its track record, this is unlikely.

See Our LCC Report Here

JetBlue Airways (NASDAQ:JBLU)

On Tuesday, the share price of JetBlue traded at half the annual highs recorded in November 2010 while its stock became the most shorted in its industry. (source) A look at their financials over the last 10 years shows that these sentiments are well founded.

Highly capital intensive, poor management of cash as well as a weak balance sheet have been notable features of the company since 2001. Moreover, JetBlue has had the most difficulty of all three airlines in maintaining acceptable net profit margins (2.57% in 2010).

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On the bright side, JetBlue has been reinvesting its profits, which may put it in a stronger position in the future. In 2010, its retained earnings grew by 85.29%.

See Our JBLU Report Here

Southwest Airlines (NYSE:LUV)

Southwest Airlines appears to be the best of a bad lot. It has withstood industry-wide consolidation, rejected bag fees and stood their ground against the gyrations of fuel prices while continuing to make a profit. (source) This company culture has allowed it to maintain a better competitive advantage than the above two airlines.

While it must suffer like the rest of them, Southwest has been able to maintain better net profit margins than the other two airlines. It also shows a relatively stronger balance sheet and has been able to consistently reinvest profits. Southwest also has a strong dividend history and shows brief instances of stock buybacks.

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See Our LUV Report Here

Source: Should U.S. Airlines Remain Grounded?