Frontier May Be Ripe for Profit-Taking

We first alerted readers to

Frontier Airlines

as a potential investment choice last

August. While we have always been quite positive about management at the airline, beginning in August we also knew that year-over-year comparisons would be coming in strong, that earnings would be very good going forward, and that the stock had all the right components for making a strong move. The stock has not disappointed us.

Frontier gained some 24% in the fourth quarter of 1998 and is the leading airline stock performer for the first quarter of 1999 among all the airline stocks we track. So far in 1999, Frontier has gained 82% through Thursday.

We suggest, however, that year-over-year comparisons will probably start to slow down for the airline that has so far seemed to thrive under the always-watchful gaze of big boy

UAL's United Airlines

(UAL) - Get Report

in Denver. And while earnings should continue to be relatively strong going forward, and we see nothing negative with the airline operations at this point, we think the main bump-up in the stock may be running its course.

If you got in at 3-and-change last August, we think it might not be a bad time to take profits and reap a hefty little reward.

US Airways Counterpoint Argument

On Tuesday, Herb Greenberg

outlined the

Tiger Management

philosophy of life as it pertains to

US Airways

(U) - Get Report

. Simply put, the investment firm that also owns almost 19% of US Airways' stock thinks that the airline stock is a sure-fire winner. Tiger projected that the stock could soar to as high as 168 in two years.

And the reasoning behind all this glorious rapture?

Stock buybacks.

We hate to tell you this, but we personally would not buy a stock, much less an airline stock, based on the fact that the company has an aggressive buyback program. Why? Because most all the other airlines are also engaged in stock buyback programs. So, what is the advantage? If they all are doing it, we need instead to focus on fundamental operational and strategic considerations.

Our take? This is yet another example of

Stephen Wolf 's

pure charisma on Wall Street. Wolf, more than any other airline executive, has always known how to charm the Street. And this is no exception.

Well, Tiger Management can have its opinion. We have ours.

We would buy an airline stock for the long term, based on operational and strategic trends seen now. And the operational and strategic trends we see for US Airways are disturbing.

We don' t care what the official word from US Airways is, we're hearing that loads on its low-fare Metrojet flights are not good. As one high-level management source at US Airways told us last week, "Well, if we are going to bleed all over ourselves, at least it will be rather hard to see on that damn livery of ours."

US Airways has announced an unprecedented expansion at Washington's Dulles Airport -- which includes more Metrojet flights, a new shuttle operation and new mainline flights as well. Fine. The only thing is, as we expected, US Airways was then met with a very competitive response by United Airlines. We don't see how this cannot result in an erosion in US Airways' revenue per available seat-mile, or RASM, and yields in this market. Not to mention the costs involved with this ramp-up in service.

Earnings for US Airways were disappointing last quarter and were a harbinger of things to come, in our opinion. As we had expected, the airline showed a greater drop in yield and RASM than most of its major airline counterparts. And, remember, US Airways has little international exposure -- the most instrumental factor in dragging down yield for both United Airlines and AMR unit American Airlines. So, we have to remember that this deterioration was primarily from their domestic routes.

With more competition on many of US Airways' routes already having been announced by more than one competitor, the long-term scenario remains continued yield deterioration. And remember, US Airways already has the highest cost per available seat-mile, or CASM, of any major airline.

US Airways also has the most restrictive scope clause of any major airline. Translation? This means that the airline cannot grow its US Airways' Express operations using lower-cost regional jets nearly as much as other major airlines can with their own regional/affiliate operations. This is a very important point.

Comair Announces Yet Another 3/2 Split

Yes, another one of our more favored stocks chimed in Thursday with news of yet another 3-for-2 stock split. Shares of



have now split 3-for-2 eight times since the airline went public in 1981. The split is effective for shareholders of record as of March 15 and will be paid out March 25.

We still like Comair and, in fact, would not be surprised to see Comair move out West to pick up slack from


(SKYW) - Get Report

for Delta, as it appears likely SkyWest is going to snuggle closer with United in Denver.

Holly Hegeman, based in Dallas, pilots the Wing Tips and Traveling With Wings columns for At the time of publication, Hegeman held no positions in stocks discussed in this column, although holdings can change at any time. 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 While she cannot provide investment advice or recommendations, she welcomes your feedback at