The world is fascinated by the missing Malaysian airliner that has gone missing this week. When I turn on the TV the coverage is focused on the plane to the exclusion of the Ukrainian situation and other breaking news. Theories and ideas about what happened and where the plane is seem to be of great curiosity to the media and I guess to viewers.
Of course anytime there is an unusual event the pundits begin to wonder how this story might impact the financial markets. The question has already been asked at o what effect the missing airplane might have on the airline industry and airline stocks.
The simple answer is that as intriguing as this mystery is to watch it will have no impact on the airline stocks of real or lasting importance. Air travel is still the safest, fastest and most efficient way to travel. Although airline disasters receive a lot of press coverage it is still safer and cheaper to fly than to drive to your destination and people are not going to stop flying.
The airline industry, especially those in the United States, are seeing increased traffic that is expected to continue as the economy slowly recovers. The industry has reduced its overall capacity and that is helping margins as well.
The bankruptcy of American Airlines (AAMRQ) and subsequent combination with US Airways (LCC) that was completed in December should lead to further capacity declines as duplicate routes are eliminated. The future for the airline stocks for the next few years looks pretty bright from my view.
If I use Portfolio Grader to look at the airline industry it becomes very clear that this is an attractive industry of investors with solid fundamentals and strong buying pressure from the large institutional investors.
If you were to buy all of the US airline stocks you would have an overall portfolio grade of B. Only two stocks, Skywest (SKYW) and Republic Airways (RJET), are struggling and rated sell by our stocks grading system. United Continental (UAL) is rated a hold and the rest of the industry is rated either buy or strong buy right now.
Southwest Airlines (LUV) remains the best in class in the industry right now with the highest customer satisfaction ratings and the highest grade from Portfolio Grader. The integration with AirTran is driving sales and earnings growth for the airline and institutions have been buying the shares steadily.
LUV posted another positive earnings surprise in the fourth quarter and analysts have raised their estimates for both 2014 and 2015 recently. The stock was upgraded back in October and remains a strong buy today.
Delta Airlines (DAL) is another company that is exhibiting strong fundamentals right now. The company is benefitting from the reduced capacity in the industry and is earning higher yields on more passengers. Delta has posted 4 consecutive positive earnings surprises and analysts have been raising their 2014 and 2015 estimates for the company.
Portfolio Grader upgraded the stock to an A back in January and Delta is a strong buy at the current price.
The missing Malaysian airliner may be an interesting news story but there is no fallout for the US airline industry. Conditions in the industry are good and getting better and the stocks should have clear skies and smooth sailing this year.