Airlines: No, the Sky is Not Falling

You know it’s been a bad week for airlines when they gain between 1% and 3% in a day and are still have sizable losses for the week.

Bloomberg News

Shares of American Airlines (AAL) have dropped 7% this week, while Delta Air Lines (DAL) has fallen 6.3%, United Continental (UAL) has slid 10%, Southwest Airlines (LUV) has declined 4.9% and Alaska Air (ALK) is off 4.5%.

Despite this week’s pain, Deutsche Bank’s Michael Linenberg and team still like American Air Lines, United Continental, Southwest Airlines and Delta Air Lines:

We are of the view that the group’s long-term investment thesis remains intact. We, and our European colleagues, believe that Lufthansa’s issues may be more specific to Lufthansa, although it does appear that air fares between the US and the Continent are less robust than those between the US and UK. Regarding the Iraq situation, unfortunately military action in that part of the world has been ongoing for the better part of the past decade. The US airlines have in the past been quick to respond to rising fuel prices via various initiatives (fuel surcharges, elimination of marginal flying, etc.)…

As such, we believe the recent pullback represents an attractive entry-point for investors with a longer-term investment horizon. However, we understand why investors with a shorter-term investment horizon may be trimming positions, especially if it is to lock-in sizable price gains achieved year-to-date.

Cowen’s Helane Becker and Conor Cunningham defend Alaska Air:

We are reiterating our Outperform rating and price target of $115 (pre-split) on Alaska Air Group. The shares and group have been under-pressure due to growing concerns over high jet fuel costs and overcapacity on the transAtlantic. Despite recent events, we believe the near-term outlook for the airlines remains quite robust as demand trends continue to improve. We continue to believe consensus estimates need to trend higher as PRASM for April and May were ahead of our and Street expectations.

Shares of American Airlines have gained 1.8% to $40.91 at 2:42 p.m. today, while Delta Air lines has risen 2.7% to $39.52, United Continental has advanced 1.4% to $43.18, Southwest Airlines has jumped 2% to $26.24 and Alaska Air is up 2.6% to $95.39.