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Airlines Rally Due To The AMR Sweepstakes

|Includes:American Airlines Group (AAL)

In a very unstable market, airlines have been a rare strength, as several of the companies hope to profit from the bankruptcy of American Airlines or AMR Corporation (AAMRQ.PK) through either a merger or its lost business. In a report by Reuters, AMR plans to "press ahead" with evaluating potential mergers and will reach out to interested parties. This news created optimism among just about every airline company, due to the increased revenue and dominance it could bring the lucky airline. With that being said, look at the performance over the last five days of a few top airlines, that each believes it could be the lucky winner in the AMR sweepstakes.



Market Cap


5 Day Perf.

Delta Airlines




United Continental








US Airways




Jet Blue




Spirit Airlines




S&P 500





Each of the major airlines outperformed the S&P 500 over the last week and this is an industry that has a history of trading in the same direction as the market, but with a larger beta (similar to banks and the auto industry). Yet because of the potential merger with AMR Corporation, each of these stocks has traded slightly higher despite weakness in the market, as investors seem comfortable in buying into the space.

Despite the recent gains in the airline industry it is still a very fragile space. The International Air Transport Association (IATA) reported last week that global airline companies posted a considerable loss in the first quarter of 2012, a net loss of more than $1 billion compared to a post-tax profit of $17 million in the first quarter of 2011. And although the majority of this loss was in Europe and Asia; the industry itself is still fragile and will only grow with consumer confidence and spending.

The good news for the airline industry is that we have seen some decline in oil prices and the U.S. has been the strongest in terms of performance, compared to the rest of the globe. It appears as though this domestic strength, combined with the possible merger with a company that reported over $21 billion in revenue over the last 12 months (American Airlines) has given the industry a spark. However, as an investor, I would be careful and watch the developments of both the merger and even commodity prices. It has all the makings of being a very volatile space over the next several months, therefore be careful. Because if stocks are trading higher in hopes of profiting from the bankruptcy of AMR, then what happens to the companies who end up not benefiting in any way? My guess is significant loss, but gains for the one, maybe two companies that are involved in the merger.

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

Stocks: AAL