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Airlines are an integral part of modern society. People and businesses may choose to fly less during times of economic uncertainty but to cease flying entirely is unthinkable. One might assume that providing a service that is so necessary for business and so widely used for recreation would be extremely lucrative, but the airline industry as a whole has struggled for more than a decade to stay in the black.

The airlines have taken drastic cost cutting measures, such as paring back services like inflight meals and providing pillows and blankets. They have increased airfares again and again and introduced a slew of new fees to increase revenues as well. One of the most common and despised fees is the charge for checking luggage. There have also been a number bankruptcies and mergers that have consolidated the industry.

Airline stock prices have taken a beating over the last twelve months. Two major airline industry Exchange Traded Funds (ETFs), Direxion Airline Shares (FLYX) and Gugenhiem Airline ETF, (FAA) are down 32% and 27% respectively for the year. Does this present a value buy opportunity? Are any airline stocks a ‘buy’ right now? To find out we will explore five of the big names in the airline industry.

Delta Airlines Inc (DAL) – Delta airlines is the second largest carrier in the world but despite that has only turned an annual profit twice in the last ten years. Delta filed for chapter 11 bankruptcy in 2005. It emerged in 2007 and managed a profit that year but failed to do so over the next two years. Revenues have been increasing year over year since 2007 but Delta has not been able to translate that to the bottom line. The story isn’t all bad though. Delta’s stock price has dropped over 33% in the past 52 weeks.

Upbeat earnings estimates have improved the forward looking P/E to 11. Delta has nearly $4 billion in cash on the books and improving operating cash flow. I am not ready to declare this a solid turnaround story, but it is a stock worth watching. If Delta can prove it can turn a profit 2 years in a row it might be worth picking up at the bottom half of its 52 week range ($6.41 - $14.54).

JetBlue Airways Corporation (JBLU) – JetBlue is a low cost, customer oriented point-to-point domestic carrier. JetBlue’s strategy is to provide low fares, keep operating expenses low and serve areas that are underserved or where the larger carriers have high average airfares. It maintains profitability by ensuring it uses much of its seating capacity on each flight, a metric known as load factor. This high volume, low margin strategy has kept it in the black during uncertain economic conditions and should continue to do so during the protracted economic recovery.

It is currently sitting very near its 52 week low at $3.88 for no other reason than airlines stocks are unpopular at the moment. The indiscriminant sell-off of airline stocks has provided an opportunity to acquire this one with a 15-20% upside and limited risk on the downside. However, considering how the market has been hammered in recent weeks, there are better opportunities.

United Continental Holdings (UAL) – United Airlines and Continental merged this time last year to create United Continental Holdings. United Continental posted a loss in 2008 and 2009 but earnings have been trending up for the past four years and with over $8 billion in cash and around only $12 billion in debt, United Continental’s balance sheet is one of the strongest in the industry. United Continental has shown consistent improvement for three years running during difficult economic times and as the economy improves so shall this well-managed company. This stock is a buy.

US Airways Group, Inc. (LCC) – US Airways has a strong balance sheet and has been beat up more than many of its competitors to the tune of -40% over the past 52 weeks. This has dropped its price to earnings to a multiple of 3.78. This is the lowest P/E amongst competitors which have managed to turn a profit for the past 2 years. US Airways announced recently that it set a new load factor record in September of just over 83%. The ridiculously low P/E is enough to warrant a closer look and upon inspection US Airways did not frighten me away from recommending it as a solid buy.

Southwest Airlines Co. (LUV) - Southwest has managed to turn a profit every year for over 30 years despite economic hardships, volatile oil prices and increased competition. It has managed to do this while maintaining lower prices than many of its competitors and eschewing baggage and flight change fees. It is arguably the best in the business at hedging fuel costs and keep maintenance costs down by limiting the models of aircraft it flies.

Southwest is an extremely well-managed company that has the balance sheet to prove it. It has as much cash as it does debt and even offers a small dividend (.20%). Southwest’s recent acquisition of AirTran should prove to be a great catalyst for earnings growth as it applies its cost saving measures and business model to its new fleet. At less than $8 a share, Southwest is an absolute steal and my number one airline industry pick.

Source: 3 Cheap Airline Stocks To Buy Now, 2 To Avoid