Airline share performance so far this year has been mixed, with double-digit gains by three legacy carriers and declines by domestically focused carriers Alaska,
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leads the sector with a 50% gain, partially due to strong performance and partially to merger chatter. Because a merger with bankrupt
would likely lead to further capacity declines, Wall Street is increasingly supportive.
Linenberg considers 2011 to have been "a watershed year" for airlines because they prospered despite sub-2% GDP growth and a 40% increase in fuel costs.
"As such, we remain favorably disposed to the names that we believe are most leveraged to an industry that appears to be undergoing a secular change," he wrote, naming Delta, United and US Airways, as well as low-fare, low-cost carrier
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Overall, he estimated the industry will report net a net loss of $815 million, $100 million better than a year ago despite higher fuel costs, in what is typically its weakest quarter. Meanwhile, Maxim Group analyst Ray Neidl wrote, in a recent report, that he estimates the industry will have a small first-quarter loss preceding strong full-year results.
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"The U.S. industry is probably in the strongest position that it has been since deregulation due to three key factors which include industry consolidation, cost/capacity discipline, and the development of ancillary revenues from add-on fees," Neidl wrote. "The key remaining challenge for the legacy airlines is improvement of the balance sheets which would enable the market to value the legacy airlines at a higher multiple."
-- Written by Ted Reed in Charlotte
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