This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Airlines Prepare for Takeoff

This column originally appeared on Real Money at 3:00 p.m. EDT on March 23.

NEW YORK ( Real Money) -- We have witnessed a series of mergers between major airlines: the Delta (DAL - Get Report)- Northwest deal in 2008, the United Continental (UAL - Get Report) merger in 2010 and Southwest's (LUV - Get Report) acquisition of AirTran in 2011. Most recently, we learned from our sister publication, The Deal -- which covers mergers better than anyone -- that U.S. Airways (LCC) is merging with AMR, the parent of American Airlines. Thanks to these deals, the devastating competition that had made the airline industry un-investable is now gone. The entire country is now like Alaska, which means the industry is now like Alaska Air (ALK - Get Report), the only carrier that had been investment-worthy because of its near-monopoly status.

In the old days, the business was a vicious Hobbesian nightmare, an ultra-competitive war of all against all in which life was nasty, brutish and short. Bankruptcies were endemic. In fact, not a single U.S. carrier that had been around back in 1978, when airlines were deregulated, has survived without going through bankruptcy at last once. There was no other way for these companies to contend with the endless competition, which had put constant downward pressure on ticket prices.

But, after the recent spate of consolidation, the U.S. airline industry has become a slap-happy oligopoly. Once the AMR-U.S. Airways deal goes through, we'll be in a new world order, with the top four domestic airlines handling more than 80% of the domestic traffic. These mergers have allowed the airlines to cut costs and take out excess capacity. In short, running a major airline is now a viable business proposition.

That's not the only thing going right. The airlines spend a fortune on jet fuel, so the falling price of oil is terrific for the bottom line at these companies. Meanwhile, the economy is getting stronger. That means more travel -- another plus.

Why is U.S. Airways-AMR the best way to play the renaissance? Simple: because the much-anticipated merger, a deal I believe based on coverage at The Deal, will pass antitrust muster.

Once this merger is completed, the combined company will be the largest airline in the world, with a fleet of 1,500 aircraft.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
Back to Nasdaq


Markets

Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs