United Will Lose Money, so Buy the Stock: Analyst
Overall, as Alaska (ALK) and Southwest (LUV) prepare to report earnings on Thursday, with other carriers to follow next week, the sector is flashing positive signs. March traffic reports were generally positive, with revenue per available seat mile trends improving, following disappointing February RASM numbers. Linenberg foresees first-quarter margin expansion at seven of the 11 carriers he follows.
Also, operational performance has been superb. In February, on-time performance was the best ever for February and baggage handling was the best for any month since tracking began, with just 2.64 mishandled bags per 1,000 passengers, the trade group Airlines for America reported. Operational performance does not correlate directly with profit, but strong performance directly reduces costs and also enhances customer morale.
Airline share performance so far this year has been mixed, with double-digit gains by three legacy carriers and declines by domestically focused carriers Alaska, JetBlue (JBLU) and Southwest.
US Airways (LCC) leads the sector with a 50% gain, partially due to strong performance and partially to merger chatter. Because a merger with bankrupt AMR (AAMRQ.PK) would likely lead to further capacity declines, Wall Street is increasingly supportive.
Linenberg considers 2011 to have been "a watershed year" for airlines because they prospered despite sub-2% GDP growth and a 40% increase in fuel costs.
"As such, we remain favorably disposed to the names that we believe are most leveraged to an industry that appears to be undergoing a secular change," he wrote, naming Delta, United and US Airways, as well as low-fare, low-cost carrier Spirit (SAVE) .
Overall, he estimated the industry will report net a net loss of $815 million, $100 million better than a year ago despite higher fuel costs, in what is typically its weakest quarter. Meanwhile, Maxim Group analyst Ray Neidl wrote, in a recent report, that he estimates the industry will have a small first-quarter loss preceding strong full-year results.