Airline Stocks Fly Through the Downturn

CHARLOTTE, N.C. -- Looking for a safe haven in today's jittery stock market? Try the airlines.

The sector rose sharply Tuesday, with the Amex Airline Index up 11.5%. On Monday, as the market plunged, the index was flat, but shares in several carriers rose significantly.

UAL(UAUA) has been a leader this week, gaining 7% on Monday and 13% on Tuesday. AMR(AMR) gained 4% on Monday and 15% on Tuesday. Delta(DAL) jumped 23% on Tuesday.

Sure, most of the advance is due to tumbling oil prices, but that's not the whole story. In fact, for weeks, falling fuel prices may have masked what's really going on in the airline industry, which is that demand has remained strong, despite a slowing economy, and widespread capacity discipline shows no sign of diminishing.

While the future may include a sharp downturn in traffic for U.S. carriers, that has not been the case so far. In fact, although airline share prices have doubled since mid-July, in line with oil price declines, the other positives have not been priced in, several airline analysts say.

Last week, the news was all good. Continental(CAL) said domestic bookings for the next six weeks are running about 2 points higher than last year, even as domestic capacity is falling. It's down 9% this month, when the carrier expects "substantially higher" mainline domestic yields.

JetBlue(JBLU) also says bookings are strong. At an analyst meeting last week, executives "were saying they haven't seen demand this strong in a recessionary environment in the last 20 or 30 years," says FTN Midwest Securities analyst Mike Derchin.