Finding Airline Alternatives

By Glenn Curtis | June 17, 2010 AAA

Because the economy is likely to kick into higher gear at some point, some have decided to fly into airline stocks. But I question whether getting into the airline stocks is worth it because of all of the risks and concerns that are associated with the commercial airline business.

IN PICTURES: 5 "New" Rules For Safe Investing

Fly High?
On a positive note, on Tuesday, the Associated Press reported: "United said its passenger unit revenue, which is passenger revenue for each available seat flown one mile, will be up between 26 percent and 27 percent for the quarter that ends June 30." United also said in a filing late Monday with the Securities and Exchange Commission that non-fuel expenses would rise less than expected, up 3.2% to 3.7% per available seat mile for the quarter, compared to the same period last year. Maybe not surprisingly, shares of UAL Corp (Nasdaq:UAUA) rose on the heels of the news.

While this was good news, I do have concerns about airlines in general. One major issue is how the government can potentially impact such companies by enacting regulations and inventing rules on the fly. Also, remember how an incident, such as 9/11, can impact demand for recreational and business air travel. Obviously we all hope that something like this never happens again, but if it did it could make a heavy dent in airline stocks. Not to mention that the cost of fuel can be very expensive and has a major impact on airlines and their financials. Oil prices will rise over time, and it could be tough for airlines to make that up. (To learn more, see: Terrorism's Effects On Wall Street.)

Other Ways to Fly
Boeing (NYSE:BA) is on my radar screen because it has a great defense business and a great commercial business, and longer term it's a much better way to bet on the American travel industry. Boeing recently announced plans to raise its production in 2012 on Next-Generation 737s. Finally, Boeing is profitable and expected to earn $3.87 a share this year, which is especially impressive in this economy.

BE Aerospace (Nasdaq:BEAV) makes interior products for airplanes. Data shows it has consistently beaten estimates over the trailing four reported quarters.

I also remained biased toward cruises. Cruise lines like Carnival (NYSE:CCL) and Royal Caribbean (NYSE:RCL) are interesting because they are both expected to reap big profits for this year, and when consumers really start to spend, these operators can generate even bigger money that will send these stocks higher.

Bottom Line
Airline stocks are preferred by some, but Boeing and BE Aerospace have more interest to me. Beyond the airlines, Royal Caribbean and Carnival are interesting because they are very profitable and will be in great shape once the broader American economy improves. (Learn more about airlines as investments, see: Is That Airline Ready For Lift-Off?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus
Related Analysis
  1. Q3 Earnings: The Halftime Report - Earnings Trends
    Stock Analysis

    Q3 Earnings: The Halftime Report - Earnings Trends

  2. Zacks Earning Trends: Q3 Earnings: The Halftime Report - Earnings Trends
    Stock Analysis

    Zacks Earning Trends: Q3 Earnings: The Halftime Report - Earnings Trends

  3. When To Buy Strongly Performing Stocks
    Chart Advisor

    When To Buy Strongly Performing Stocks

  4. Q3 Earnings Scorecard - Earnings Trends
    Stock Analysis

    Q3 Earnings Scorecard - Earnings Trends

  5. The ADX Shows Strong Uptrends In These 4 Stocks
    Chart Advisor

    The ADX Shows Strong Uptrends In These 4 Stocks

Trading Center