Airline stocks and their related exchanged traded fund (
) recently touched 52-week highs, having been swept up with the
broader market rally. But does the airline industry have the
fundamentals to continue earning for investors?
Glenn Curtis of Investopedia
, there are some concerns looking into the future of the airline
industry. Higher fuel prices will pinch margins and lead to
increased ticket prices while continued high unemployment, rising
interest rates and higher taxes will all reduce the amount of
discretionary income. [
What's Behind Airline ETF Comeback?
Of course, these concerns are not guaranteed to develop, but
fuel prices are forecast to average $81, up from $62 in 2009,
unemployment has a long way to fall, interest rates will most
likely rise toward the end of the year and higher taxes seem almost
inevitable given our government's spending.
Instead, Curtis recommends looking into Boeing (NYSE:
), which he believes will be more resilient because of its military
contracts. On the other hand,
Deepa Seetharaman and John Crawley of Reuters
think there might be some upside potential as airlines try to
consolidate resources in an attempt to boost revenue and margins.
Exposure to Boeing can be had in
PowerShares Aerospace and Defense (NYSEArca:
, which is 6.6% of the fund. [
Why Aerospace and Defense Is Bullish.
Seetharaman and Crawley report that a merger between United and
Continental would be strategic in the sense that it would have the
best chance of clearing labor and antitrust hurdles. The merger
would make the combined company the largest airline in the world
with annual revenue of $28.9 billion, based on 2009 figures. [
The Top 6 ETFs of the First Quarter.
A different scenario would have United (NASDAQ:
) and U.S. Airways (NYSE:
) merge to create the third-largest carrier in the world. But the
merger would have a much tougher time jumping regulatory
Absent a merger, some analysts, unlike Curtis, still like the
industry. Jesup & Lamont managing director Helane Becker thinks
airlines such as Continental (NYSE:
), Delta (NYSE:
), United, and American (NYSE:
) "will do fine."
For more stories on the airline industry, visit our
Claymore/NYSE Arca Airline (NYSEArca:
Sumin Kim contributed to this article.