American Air Shares Rally After They Join S&P 500: Is United Next?

American Airlines shares rise Tuesday following an announcement the stock will join the S&P 500. Airline analysts wonder if United will be next.

Author:: Ted Reed
Publish date:: Mar 17, 2015 10:31 AM EDT

NEW YORK (TheStreet) -- American Airlines (AAL) - Get Report shares were gaining Tuesday following Monday night's announcement that the world's largest airline would be added to the S&P 500 at the end of this week.

Shares of American were trading at $52.83, up $2.61, or about 5%, early Tuesday.

Inclusion in the index "is a sign that the airline industry continues to show that it has transformed from a boom and bust, low-return business to more of a sustainable growth business," said S&P Capital IQ analyst Jim Corridore, in an interview.

In recent months, airline executives repeatedly have lobbied for inclusion in the index. "As the largest airline in the world we certainly knew we would be in the S&P at some point in time," American CEO Doug Parker said Tuesday morning on CNBC. "It's good news for American Airlines."

Airline analysts said they had expected inclusion, but not quite so quickly. "This positive development is occurring earlier than expected and is anticipated to drive close to 80 million shares of incremental demand," JPMorgan analyst Jamie Baker wrote in a note.

"American has not been shy over the past year in repeatedly emphasizing its candidacy for inclusion," Baker said. "We had identified potential inclusion as a first half 2015 event. This first quarter 2015 timing is likely to exceed most expectations, in our view."

Baker noted that in the month after Delta (DAL) - Get Report was added to the index on Sept. 9, 2013, Delta shares rose 27%. During the same period, US Airways shares rose 22%, Southwest (LUV) - Get Report rose 14% and United (UAL) - Get Report rose 7%. He added that he views the addition of United to the S&P 500 "as a potential second-half event."

Additionally, Wolfe Research analyst Hunter Keay wrote in a report: "We think UAL will still be added, eventually, even though there will now be three U.S. airlines in the S&P 500 (LUV, DAL, and AAL). Note all four public Class I U.S. rails are in the S&P 500."

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.