Airline Stocks: Which Of These Companies Can Fly High?

Includes: ALK, DAL, JBLU, LUV, UAL
by: Investment Underground

By John Williams

In recent years, the airline industry has undergone great consolidation and reform through the merger and acquisition of failing airlines by larger players in the market. The sector is poised to take off soon, and a position in a worthy airline could prove to be a lucrative investment. Yet, while some airlines are poised for lift-off, others still are facing severe headwinds. Which airlines are winners for 2012, and which will prove to be unreliable investments that are unable to keep up with the competition?

Delta Airlines (NYSE:DAL) is managing to stay alive even though it possesses nearly as much liability as it has assets. The airline possesses assets worth $43 billion, but liabilities of $41 billion - $12.5 billion of which is long term debt. It seems to have made it out of the storm, however, posting a profit of $593 million in 2010 that compares extremely well to its devastating loss of $8.9 billion back in 2008. The first three quarters of 2011 shows the airline continuing in the right direction and I believe that there could be a move for this stock in 2012.

Delta is currently eyeing ARM Corporation (AMR), which owns American Airlines. If the acquisition were to occur, it would propel Delta back into the number one position, which it has traded in recent years with United Airlines (NYSE:UAL), as both airlines have bought up a number of airlines in recent years that were headed into bankruptcy. I believe Delta is a buy for 2012 due to its profitability over the last two years and the possible buyout of American Airlines, which is bound to create some activity with investors.

JetBlue Airways (NASDAQ:JBLU) has soared in the past two months, moving from $3 per share in November of last year to $6 at the beginning of February. This airline has its own recovery story and has rebounded from a $76 million loss in 2008 to profits in each of its last three years. JetBlue is a smaller airline that flies much shorter routes than its larger counterparts and exists independently of the larger airlines as a result. I don't see JetBlue being threatened by heavy competition in 2012 and it should continue to grow, making this one a buy this year.

When compared side to side with Delta Airlines, United Airlines falls a little short. Both airlines have moved into profitability, but United Airlines has had much more turbulence. It lost around $5.3 billion in 2008 and another $651 million in 2009, making a profit of $253 million in 2010 and moving into 2011 with a loss in the first quarter that was followed with profits in the second and third. Its number one position is threatened by Delta, which makes me see this stock in a losing position if the more profitable Delta moves ahead and gives investors reasons to lose faith in United.

Southwest Airlines (NYSE:LUV) is the only player on the list that did not record a loss in either 2008 or 2009 and has maintained profitability through 2012. Its stock has hovered between $6 per share and $12, however, and I believe that this stock won't make any major long term moves in either direction. Southwest is the largest short haul carrier in the United States with a fleet of over 700 jets and I don't think the airline has much room for expansion.

Unless it is able to begin flying internationally, I don't see much growth potential here, and the chance that Southwest would be able to compete with Delta and United internationally is slim. I don't think that there is much risk of loss here, but I just don't see Southwest stock making any gains either.

Alaska Air Group (NYSE:ALK) serves over 23 million fliers each year, traveling to destinations predominantly in Canada, the United States' West Coast and Mexico. Like the others on the list, this airline has shown a consistent turnaround and a steady increase in profit over the last three years, posting a profit of $251 million in 2010 compared to its loss of $136 million in 2008. Due to its predominantly regional service, this airline isn't threatened much by competition and I believe that it has room to grow.

Alaska Air stock has risen in value from $62 per share to $77 over the past year and I believe that 2012 will be more of the same. Three years ago, you could have purchased Alaska Air stock at $15 per share, which makes it the most rapidly appreciating stock of the entire group.

Delta Airlines and Alaska Air Group are two sure buys this year and Delta will prove to be an especially lucrative investment if it announces the purchase of American Airlines. JetBlue should fare well in 2012 as well due to steady rises in its revenue each year and the fact that it has plenty of room to grow, unlike Southwest, which already dominates the United States market in short route flights. United Airlines is a gamble, in my opinion, due to the fact that its growth isn't quite as rapid as its competition and the possible news of Delta's buyout of American Airlines could send this stock in the other direction as investors begin to back Delta in the current war between the two rivals.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.