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Tickers in this Article: AMR, CAL, LUV, DAL
Odds are that the demand for air travel will increase over the next decade or two, perhaps markedly as more and more people embark on vacations and business trips. But does this mean it's high time to bid up airline stocks? The simple answer is no. (For a primer on the airline industry, check out The Industry Handbook: The Airline Industry.)

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Takeoff Could Be Tough

While airlines will naturally be necessary to facilitate air travel in the years to come, there are some concerns about the group.
The biggest thing that irks me is some of the latest earnings results, those the companies have generated over the past year or so. Frankly, they've been lousy.

As an example, AMR Corp (NYSE:AMR) lost a hefty $1.14 per share excluding charges in the second quarter. Moreover, it lost money on an EPS basis in the prior four quarters too, and it's expected to lose a boat (or rather plane) load on the EPS front this year and next year. Never mind that the stock trades under $5, which can be a big obstacle to getting attention from Wall Street analysts.

Low Expectations
Continental (NYSE:CAL), which is obviously another big name in the business is due out with its second quarter numbers later this month. To be clear, I'm not expecting much and the Street apparently isn't either. The company is expected to lose a whopping $1.34 a share in the period. Incidentally, the same source indicates that it lost money on an EPS basis in each of the last four quarters and that it's expected to lose money this year. Of course to be fair it seems the company is expected to be in the black next year and earn $1.23 a share.

But is that number truly doable? I have my doubts given the unfortunate state of the economy and consumers, what seems like an "unwillingness" to part with their money. I'll believe it when I see it.

As for Delta (NYSE:DAL) the Street is expecting profits in 2010. If it hits the estimate of $1.07 (in 2010) I think there could be upside to the stock. But will that happen? Delta has missed expectations in two of the last three quarters. So again, the outcome is unsure. Note that the company is due out with its second-quarter earnings later in the month. It's expected to lose (big surprise) 27 cents.

The Slow Ascent
Of course some point to Southwest (NYSE:LUV) as a profitable airline venture. After all, it's expected to make money this year and next year. But look at the expectations. In 2010 it's expected to earn 36 cents. That's not all that impressive in my book given that it is trading at around $7. Put another way, I just don't think it'd be the best place to deploy my money.

Also, I don't want to forget about the basics of the business itself, because it is a big turn off as well. I mean no matter how you slice it it's extremely expensive to run an airline as planes can run into the millions of dollars. Never mind the maintenance, the personnel, the insurance and the sometimes exorbitant fuel costs that can weigh on these types of companies even during better economic times.

The Bottom Line
Although Americans and others will be flying for many years to come, I am not currently bullish on this space. The losses coupled with the basics of the business are a turnoff. (For more on analyst expectations, be sure to read Analyst Recommendations: Do Sell Ratings Exist? and Analyst Forecasts Spell Disaster For Some Stocks.)

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