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If the travel industry and even more specifically the airline sector is a gauge of the global economy, the skies look all clear. The AMEX Airline Index finished the month of July trading at the best level in over two years. With the overall market struggling to put together a sustainable rally this is a great feat for an economically sensitive sector. Especially considering the rising price of oil and the global headwinds that have slowed down discretionary spending.
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Online Gauge
One gauge for the travel industry, in particular the airlines is the success - or lack of it - of the online travel companies. Priceline.com (Nasdaq:PCLN) reported blockbuster earnings for the second quarter on the back of a surge in travel reservations. The company reported domestic travel bookings were up 20% and reservations for international travel jumped 59%. The numbers are tough to argue with when they are so strong. Add in the rally in the index, and it appears that the airlines are just taking off.
US Airlines
A merger that is set to be completed in the fourth quarter will create the largest airline in the world. The combination of UAL Corp (Nasdaq:UAUA) and Continental Airlines (NYSE:CAL) will result in revenue of about $29 billion and $7.4 billion in unrestricted cash. CAL shareholders will receive 1.05 UAUA shares when the deal is finalized. This merger makes sense due to its synergistic properties. If you want a piece of the largest airline company the best route is to buy shares of UAUA.
Reporting the best quarterly profit in the history of the company as the economy struggles to continue growing is exactly what Alaska Air Group (NYSE:ALK) accomplished. The company operates Alaska Airlines and Horizon Air, which is headquartered in Seattle, and flies about half of all flights out of the Seattle airport. The stock is currently trading at a 12-year high.
International Airlines
Lan Airlines (NYSE:LFL) is up over 50% in 2010 and is sitting at a new all-time high as passenger traffic picks up for the Chile-based airline. The airline services Latin America with a fleet of just under 100 airplanes. The second quarter numbers for LFL jumped over one year earlier with both top and bottom line results impressing investors. In July the company signed a memorandum of understanding to purchase 50 new planes from Airbus. LFL is a play on Latin America, the airline sector and the overall global economy. The one catch is that it must be bought on weakness after the big run in 2010.
There has to be a China stock in there somewhere and here it is - China Southern Airlines (NYSE:ZNH), the largest airline in China. At the end of 2009 the company had 378 aircrafts and served over 900 destinations while connecting 169 countries. The stock has done very well in 2010 and may be a little ahead of itself, but there is opportunity on pullbacks in the next few months.
Airline Diversification
Investing in airline stocks can be considered above-average risk and many investors are not willing to take that on. The alternative is the Claymore/NYSE Arca Airline ETF (NYSE:FAA). The ETF is composed of 24 airline stocks from around the globe with a heavy emphasis on the US airlines (72%). The expense ratio is an acceptable 0.65%. Due to the much lower risk, FAA is a solid choice for most individual investors that believe in the continued economic expansion and the airline industry. (For additional stock analysis, see Rebounding Airline Industry?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 4 More Can't-Miss Health Deductions
Online Gauge
One gauge for the travel industry, in particular the airlines is the success - or lack of it - of the online travel companies. Priceline.com (Nasdaq:PCLN) reported blockbuster earnings for the second quarter on the back of a surge in travel reservations. The company reported domestic travel bookings were up 20% and reservations for international travel jumped 59%. The numbers are tough to argue with when they are so strong. Add in the rally in the index, and it appears that the airlines are just taking off.
US Airlines
A merger that is set to be completed in the fourth quarter will create the largest airline in the world. The combination of UAL Corp (Nasdaq:UAUA) and Continental Airlines (NYSE:CAL) will result in revenue of about $29 billion and $7.4 billion in unrestricted cash. CAL shareholders will receive 1.05 UAUA shares when the deal is finalized. This merger makes sense due to its synergistic properties. If you want a piece of the largest airline company the best route is to buy shares of UAUA.
International Airlines
Lan Airlines (NYSE:LFL) is up over 50% in 2010 and is sitting at a new all-time high as passenger traffic picks up for the Chile-based airline. The airline services Latin America with a fleet of just under 100 airplanes. The second quarter numbers for LFL jumped over one year earlier with both top and bottom line results impressing investors. In July the company signed a memorandum of understanding to purchase 50 new planes from Airbus. LFL is a play on Latin America, the airline sector and the overall global economy. The one catch is that it must be bought on weakness after the big run in 2010.
There has to be a China stock in there somewhere and here it is - China Southern Airlines (NYSE:ZNH), the largest airline in China. At the end of 2009 the company had 378 aircrafts and served over 900 destinations while connecting 169 countries. The stock has done very well in 2010 and may be a little ahead of itself, but there is opportunity on pullbacks in the next few months.
Airline Diversification
Investing in airline stocks can be considered above-average risk and many investors are not willing to take that on. The alternative is the Claymore/NYSE Arca Airline ETF (NYSE:FAA). The ETF is composed of 24 airline stocks from around the globe with a heavy emphasis on the US airlines (72%). The expense ratio is an acceptable 0.65%. Due to the much lower risk, FAA is a solid choice for most individual investors that believe in the continued economic expansion and the airline industry. (For additional stock analysis, see Rebounding Airline Industry?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Matthew McCall
Matthew McCall is the president of Penn Financial Group, LLC, a registered investment advisor. He also publishes two newsletters, The ETF Bulletin and The PFG Letter as well as other educational material. As a registered investment advisor, he manages clients' investments based on their specific goals and objectives.
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