Meet the Street: Some Airlines Will Pass This Latest Test

Following yet another fatal airline tragedy and on the eve of the Thanksgiving holiday, the mettle of the airline industry has been put to a true test.

Jacques Kavafian Analyst, Yorkton Securities

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But rather than focusing on airlines' near-term business, Jacques Kavafian, an airlines and aerospace analyst at Yorkton Securities of Toronto, says investors should concentrate on companies' liquidity and their ability to survive. Though Kavafian says holiday travel might not be as bad as expected because of all the good deals being offered, it still will be some time before people feel comfortable boarding a plane again. At best, the analyst doesn't see a rebound for the airline industry coming until at least next spring.

TSC: What is your current outlook for the airline industry, and what are some of the key issues that are top of mind for you right now?

Kavafian: It's going to be tough through April/May of next year. I am expecting the airline industry to return back to normal in the late summer or spring of next year simply because time heals, time makes people forget the events. A lot of people are not traveling these days, even though traveling is not dangerous. But a lot of recent events are in people's minds, and that is worrying them. Over time, I think people will get over it.

TSC: What numbers are you expecting for the various airline and aerospace stocks that you follow? Have you made any downgrades on any of the stocks?

Kavafian: No, I am not downgrading any. In terms of numbers, I don't have any numbers on airlines for the very simple reason that it just doesn't matter right now. You have to look at the liquidity of the companies; that's more worrisome. Airline and hotel shares are depressed right now because of recent events. People are not going to value the shares on these present values.

Rather, people are going to look at liquidity. You want to make sure that you own shares in airline companies like Southwest(LUV Quote), which are here to survive.

TSC: What other companies besides Southwest do you have a good outlook for, and why?

Kavafian: Frontier(FRNT Quote) and Southwest are two good ones, and in Canada there's WestJet (WJTAF:Toronto), which is a baby Southwest. [Note: Kavafian's firm has done underwriting in the past for WestJet.] Those are the ones that are almost sure bets to survive because of their low cost bases and good financial conditions.

TSC: What are you expecting in terms of holiday travel and winter vacation?

Kavafian: Surprisingly enough, there are a lot of great vacation spots not only for the upcoming Thanksgiving holiday weekend, but for the Christmas period. There are a lot of good places that are available, too -- places that are normally booked one year in advance are currently available. And if cold weather comes soon, this will happen even earlier.