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By Chris Seabury

Over the last several years, airlines have been going through tremendous amounts of volatility. The reason why is because the industry has been seeing increased competition from the low cost discount carriers. This has caused some of the larger airlines to have added pressures related to their business models.

To remain competitive, the majority of these firms have been forced into Chapter 11 bankruptcy protection. The most notable include these airlines listed here. This is significant because it is showing how there has been a change inside the industry with consumers demanding lower fares. As a result, all of the airlines have been adopting a low cost business model. This has caused the earnings of these firms to increase exponentially based upon lower expenses and less regulations.

During the recent sell off, a number of investors and traders are wondering if now is the time to be purchasing these stocks. To determine this we will carefully examine Delta (NYSE:DAL), Jet Blue (NASDAQ:JBLU), United Continental (NYSE:UAL), Southwest (NYSE:LUV) and US Air (LCC).

Delta (DAL)

Delta is based out of Atlanta, Georgia. It has several different facilities in use around the world as hubs for various destinations. A few of the most notable include Cincinnati, Atlanta, Amsterdam, Minneapolis – St. Paul, Memphis, Paris (Charles de Gaulle), Tokyo (Narita) and Salt Lake City. The company is also involved in the repair and maintenance of aircraft for other carriers. In the past 52 weeks the stock has fallen from a 52-week high of $14.54 to $6.45. During this time the firm’s earnings have been unpredictable. Evidence of this can be seen by looking at the actual earnings of the company in comparison with analysts’ expectations:

Earnings Per Share for Delta Airlines During the Last Year

December 2010

March 2011

June 2011

September 2011

Actual Earnings

$.24

$-.38

$.43

$.91

Estimate

$.19

$-.50

$.44

$.93

These figures are significant because the unpredictability in the earnings has caused prices to become very volatile. As a result, the stock has fallen below the 200 day moving average and is continuing to set a pattern of lower lows (on lighter than normal volume). This is significant, because it is showing how Delta has been facing tremendous amounts of selling pressure related to the firm’s unpredictable earnings. In the future, this means that the stock will more than likely trade lower based on these concerns and the impact of a slowing economy on profit margins.

JetBlue (JBLU)

Jet Blue is a regional carrier that is focused on flying to select destinations including 21 states in the U.S., 10 countries in the Caribbean and Latin America. What makes the airline so unique is that the firm is offering lower fares. While at the same time, the company is providing passengers with Live TV, in-flight voice communication and a data connectivity system. These different factors have allowed the company to stand out from competitors. However, like many carriers Jet Blue has been impacted by the slow economy and high oil prices. This has caused the earnings to remain unstable. A good example of this can be seen by looking at the earnings of the company over the last four quarters.

Earnings Per Share for Jet Blue Airlines

December 2010

March 2011

June 2011

September 2011

Actual Earnings

$.03

$.01

$.08

$.12

Estimate

$.05

$.01

$.09

$.13

These numbers are important, because they are showing how the instability in earnings is causing the price of the stock to become unstable. As a result, the technical indicators are showing how this has caused the stock to fall below the 200 day moving average.

However, since that time shares have formed a double bottom pattern in October through November (with the stock recently closing above the 200 day moving average.) This is because of the resignation of the CFO along with the announcement that the airline was awarded more flights into LaGuardia and Regan National. Moreover, JBLU announced that it is adding more routes to the Caribbean and Ft. Lauderdale. This is significant, because it is an indication that JetBlue is one of the stronger carriers.

United (UAL)

United Continental is involved in both air passenger and cargo transportation services. During the last year, the firm’s earnings have been experiencing tremendous amounts of volatility from high oil prices and slower consumer demand.

Earnings for United Continental

December 2010

March 2011

June 2011

September 2011

Actual Earnings

$.44

$-.41

$1.49

$2.00

Estimate

$.23

$-.48

$1.43

$2.08

These figures are important, because they have caused the stock to become very unstable, as share prices have declined from $27.71 to a low in early November of $15.51. This is below the 200 day moving average, which is highlighting that there is still pressure on the stock.

Southwest (LUV)

Southwest Airlines is focused on providing low cost passenger service to travelers. This is accomplished through flying into airports where the landing fees are less and flying those routes that have the highest profit margins. This has allowed the firm to be able to provide consistent earnings that are in line with analysts’ estimates for three out of the last four quarters.

Earnings for Southwest Airlines

December 2010

March 2011

June 2011

September 2011

Actual Earnings

$.15

$.03

$.15

$.15

Estimate

$.15

$.03

$.20

$.14

These numbers are important, because they are showing how the declining earnings during the first quarter of 2011 and the miss in the second quarter caused the price of the stock to fall. Once this occurred, it meant that shares would go below the 200 day moving average (falling to $7.15 in early October).

However, since that time the stock touched the $7.50 level. This is illustrating how LUV has formed some kind of double bottom pattern. The problem is that shares have not been able to pass through their 200 day moving average. This is an indication that the price of the stock could have bottomed and that earnings may be improving. Yet, the inability to cross through the 200 day moving average is a sign that this is a bear rally. As a result, investors should be cautious about purchasing the stock until there is greater clarity.

US Air (LCC)

US Air offers passenger service to a number of destinations including the U.S., Mexico, Canada, the Caribbean, the Middle East and Latin America. The high cost of fuel and lower demand has caused earnings to become volatile over the last four quarters (as indicated in the table below).

Earnings for US Air

December 2010

March 2011

June 2011

September 2011

Actual Earnings

$.17

$-.68

$.56

$.51

Estimate

$.06

$-.72

$.53

$.49

These figures are important, because they have caused the price of the stock to set a new 52-week low of $3.96 in late November (which is below the 200 day moving average). However, since that time shares have risen to $5.96. This is an indication that LCC is going through a bear rally. As a result, until there are more consistent quarterly earnings and a close above the 200 day moving average, this means that the stock will be facing increasing amounts of pressure.

Clearly, the majority of carriers are dealing with similar challenges that are having an impact on their earnings. This has caused the sector to see increased amounts of volatility. After carefully reviewing all of the ones mentioned earlier, JetBlue is the strongest in the group. This is because it has more stable earnings in the last year, better service in comparison with other carriers (i.e. Live TV / in-flight voice communication / a data connectivity system) and the stock closed above the 200 day moving average. The other firms appear to be facing major challenges associated with earnings. Therefore, the most logical company to purchase in the group is JetBlue.

Source: Why JetBlue Is A Better Stock Than Others In the Airline Industry