No wonder airline profits are sky-high.
Back home now, you might ask if you can share in the airlines' good fortune by buying their stock.
The answer: maybe you can, but you missed the big payoff.
Airlines have been among the strongest stocks so far in 2014, easily beating broad measures such as the Standard & Poor's 500 index and the Dow Jones industrial average. Since late 2011, when speculation sprouted about a merger between
In the same period, the S&P 500 rose 68 percent, and the Dow gained 48 percent.
Most U.S. airlines have recovered fully from the one-two combination of record-high oil prices and the recession, which staggered them in 2008. Profit at nine leading U.S. airlines more than doubled to
A growing U.S. economy should encourage air travel, and many economists expect growth of around 3 percent in the second half of this year, up from 1.1 percent in the first half.
Still, the carriers will be hard-pressed to keep growing profits. Delta said Wednesday that revenue for every seat flown one mile — an important statistic in the airline business — grew 2 percent in August, a slowdown from earlier this year.
Savanthi Syth, an analyst with
"The bear case would be that the big improvements are done, and earnings growth is going to slow," she said, noting that it will be hard to repeat the returns of the last two years unless the economy booms. Even so, she thinks there are still potential gains for airline stocks.
Analysts who have seen their longtime faith in the airlines rewarded during past two-plus years say this is no time to sell.
"If you look at airline stocks against other transports or other industrial stocks, the valuation is still comically low," said
He says that Delta and some others still have low price-earnings ratios. That's because investors aren't sure that the airlines will remain profitable for the long haul, even through downturns.
"The airlines still haven't really been tested by another crisis" such as another huge spike in fuel prices, Keay said, and until they are, investors will naturally be skeptical.
The biggest threat to the airlines' rally, besides a slump in the economy or the broader stock market, is the fear that they would add too many flights too soon, leading to a glut of seats and triggering fare wars. When such concerns emerged this summer, particularly with routes between U.S. and
Mergers have left four companies — American, United, Delta and
Passengers don't want to pay more, but airlines are taking a more pro-investor stance.
Delta and American have reinstated their dividends, while also reducing debt and contributing to pension plans. And both are buying back shares, a move that boosts the value of remaining shares and is popular with shareholders.
Analysts say the dividends are an important signal that airline managements are paying more attention to profits.
"In the old days, when they made money the first thing they would do is call
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