A Look Back at the Airlines

Plus, we announce the 1999 <I>TSC</I> AIR Stock Portfolio.
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Who says it doesn't pay to invest in the airlines? Not us. And where else -- besides the Internet sector, of course -- do you get such a thrill of victory and ever-present fear of defeat? In short, does any other industry allow you to have so much darn fun and excitement?

No, and as proof, all you have to do is look at the returns from 1998, where the regional/commuter sector once again came out on top, as they had also done in 1997 just as we had predicted.

Consider

Amtran

(AMTR)

, the Indianapolis-based carrier that rose 244% on the year, thanks in part to then-

Salomon Smith Barney

analyst Julius Maldutis, who initiated coverage of the stock with a strong buy recommendation last spring. Congratulations, Julius!

Because we never really took a long look at Amtran last year, mark this as our miss. It just did not hit the Wings radar screen for some reason. Hey, last year we ignored

US Airways

(U) - Get Report

, and it posted the highest gain on the year.

Maybe there is a pattern developing here.

However, we sure hit the mark with the next two.

Frontier Airlines

, which we used to own and which we highly recommended to you, ended the year posting a 144% gain.

SkyWest

(SKYW) - Get Report

, another airline we like a lot, posted a 121% gain on the year to take the third-place honor in the group. So, all in all, we are pretty pleased with ourselves here.

Among the major airlines, only two managed to post gains on the year. One was our perennial favorite (and as many of you know, my sole airline holding)

Southwest Airlines

(LUV) - Get Report

, posting a 37% gain. (

Morgan Stanley Dean Witter's

analyst Kevin Murphy raised his rating on Southwest to strong buy from outperform Friday, and shares soared, up 3 3/4 this morning.) True, we were a bit cautious on the stock this year -- we wondered if earnings would flatten as the airline undertook a big expansion. Well,

Boeing's

(BA) - Get Report

late deliveries of new 737-700s pushed back that expansion, the airline continued to churn money and had no foreign exposure, and, as a result, investors stuck with the stock while most all other major airlines fell sharply with cases of Asian-related angst this past summer.

Alaska Airlines

(ALK) - Get Report

posted a 14% gain to take second place. This one we talked about several times, as it was the subject of some very heavy speculative buying earlier in the year. Then it dropped like a rock as the speculative money fled when no merger or buyout happened. As of late, there has been some speculative money moving back into this stock because of the airline's highly strategic position on the West Coast.

And how about the cargo sector? I was high on these folks last year:

FDX's Federal Express

(FDX) - Get Report

,

Atlas Air

(CGO) - Get Report

and

Airborne Freight

(ABF)

in particular. Well, Asian angst caused Wall Street to shun these stocks like the plague this past year. As a result, by September these stocks had reached a point of being so cheap it was almost obscene -- especially Airborne, which was down to 14 and change in early October.

Well, someone finally woke up and took notice. Thanks to VERY strong fourth-quarter returns (Airborne rose a blistering 109% in the fourth quarter, FedEx 101%), our faves posted quite acceptable returns for the year: FedEx 47%, Airborne 16% and Atlas Air 107%. So, while our original expectations for these three were rewarded handsomely, in the end, the first nine months of the year gave us heartburn.

And finally, we have our foreign flyers. Our overall favorite here, since last February -- low-cost Irish carrier

Ryanair

(RYAAY) - Get Report

-- led the foreign airlines that we track, posting a 50% gain on the year. While some may recall that early on, we thought

Virgin Express

was the stock that would be the winner in this group, we switched gears abruptly on that opinion in February after meeting with the folks from Ryanair.

No other foreign airline posted a gain on the year, and many lost a LOT of ground. This group was not the place to have your money in this past year.

So, how did our crack

TSC AIR Stock Portfolio

turn out?

  • Mesaba (MAIR) : 19%
  • US Airways: (16%)
  • Southwest Airlines: 37%
  • Atlantic Coast (ACAI) : 57%
  • Continental Airlines (CAIB) : (30%)
  • TWA (TWA) : (53%) (ouch!)
  • Average: 14%

The results aren't bad: only 2 points behind the

DJIA

for the year.

And what airlines have you carefully and meticulously chosen for your

1999 AIR Stock Portfolio

? (Drumroll please.)

  • Delta Air Lines (DAL) - Get Report
  • AMR, parent of American Airlines, (AMR)
  • Southwest Airlines
  • UAL, parent of United Airlines, (UAL) - Get Report
  • Continental Airlines (CAIB)

What's the message from your picks for 1999? Methinks you believe the majors are in for a serious rebound this year. Not a regional/commuter, cargo carrier or foreign flyer in the bunch.

Hmmmm.

So, who is on our short list for 1999? You are going to have to wait for that scintillating news. Our 1999 fearless Wing Tips prognostications will be outlined in our next column.

Wing Tips Notebook

Remember in our last column when we wondered if someone was going to wake United Airlines up? They woke up. The airline announced a stunning 60% increase in its service out of Dulles Airport -- and in four short months no less. The battle lines are being formed. US Airways just may be nuts after all.

Thanks to all of our readers who sent in top airline picks for 1999. The winner of that lovely long-sleeved

TSC

T-shirt is none other than longtime

TSC

reader

Ken Moore

, who reminded us with his list of 1999 picks that he is "one of the last true, down in the pits, up to my elbows with tickets, position traders." He likes TWA by the way. Kind of the old how-much-lower-can-they-go mentality, eh, Ken?

Holly Hegeman, based in Dallas, pilots the Wing Tips column for TheStreet.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site, at www.planebusiness.com.