Airline Stocks Fly Through the Downturn

Despite falling fuel prices, AirTran(AAI Quote) says it has no plans to scale back a planned capacity reduction of 7% to 8% this year and 4% to 8% next year. For years, AirTran has been among the industry's growth leaders.

"We have already made commitments to sell airplanes, and that is permanent," said CFO Arne Haak, in an interview. "We have deferred deliveries with Boeing (BA Quote), and that is permanent. And I think there is likely to be capacity discipline in our industry for some time now."

The trends add credence to the July statement by Doug Parker, CEO of US Airways(LCC Quote), that "What's already being done [in capacity reduction] may be enough to get the industry profitable in 2009."

Even 2008, while bad, doesn't look quite as dire as it recently did. Last week, the Air Transport Association said industry losses this year should total between $7 billion and $9 billion. That's a reduction from the $7 billion to $13 billion it had predicted earlier.

Derchin says that after seeing Continental's report to investors last week, he now projects a 2009 profit for the carrier of $2.14 a share. He had been predicting a loss of 31 cents.

His other favorites include AirTran, American and Southwest(LUV Quote).

"AirTran is the biggest bargain out there," Derchin says. Investors have been scared off due to fears that Delta will try to undercut AirTran's pricing in Atlanta, he says, but that is unlikely given Delta's new focus on global growth.