US Airways Shares Lead Airline Stocks

US Airways rose about 7% Monday, a result of short covering and investor diversification.
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TEMPE, Ariz. (

TheStreet

) -- Shares in

US Airways

(LCC)

, already the airline industry's top gainer this year, surged Monday about 7%, to close at $11.58. They are up 137% this year.

In pre-market trading Tuesday, the stock was slightly up 0.17% to $11.60.

CRT Capital Group analyst Mike Derchin cited two likely causes for Monday's gain: short covering and investors' efforts to broaden their airline holdings, given the sector's strong earnings and 4.4% growth last week.

Short sales accounted for 18.2% of US Airways' float as of Sept. 30, according to Yahoo! Financial. Two carriers,

United

(UAL) - Get Report

and

JetBlue

(JBLU) - Get Report

, were slightly higher.

American

(AMR)

and

Delta

(DAL) - Get Report

were at 3.7% and 3.6% respectively.

"Last week (US Airways) reported better-than-expected earnings," Derchin said, in an interview. "People thought that unit revenue was going to decelerate a lot more, but it is holding up quite well. So I expect that a lot of the move

Monday was short covering." US Airways reported

record third quarter earnings

.

Additionally, Derchin said, "I've had a lot of conversations with people who own

an airline and are looking to add a second name. They are saying 'Hey, if I own one, maybe I should own two.'"

US Airways is

uniquely positioned

; it's neither a global carrier with a vast international network nor a low cost carrier. Historically, this has been seen as a disadvantage, cited by former CEO Stephen Wolf as a reason to pursue a merger with United in 2000. Subsequently, current CEO Doug Parker also pursued a merger with United.

In the long term, Derchin said, United remains the most likely partner for US Airways, but first it must spend a few years digesting a merger with

Continental

. US Airways already partners with the two carriers in the Star alliance and, despite suggestions that it might be

better served by joining Oneworld

, President Scott Kirby noted on last week's earnings call that the carrier is happy where it is.

"You could make a case that if they stay in the Star Alliance, and three years down the road

Continental

is fully integrated, then United could decide to do a deal," Derchin said. He added that a merger with Delta would likely run afoul of antitrust regulators, since Atlanta and Charlotte are the only two Southeast hubs.

A merger with American has been the subject of much discussion, but faces the obstacle that American has indicated a

distinct lack of interest.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here:

Ted Reed

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