Looking to invest in an airline that has solid earnings growth, double-digit percentage traffic growth, good control over costs and isn't named JetBlue ( JBLU) or Southwest ( LUV)?

Consider Mesa Air Group ( MESA), a small regional carrier operating out of Phoenix, serving 150 markets as a code-share partner for big guys like America West ( AWA) and US Airways. Last week, the company announced second-quarter earnings that handily topped Wall Street estimates and on Wednesday, it said traffic was up 31% in the first four months of 2003.

Savvy investors already have caught on to the Mesa story, doubling the stock since it hit $3 on March 13, when it was depressed by war fears. But even after the move, long-term buyers could see additional upside as the company continues to move away from unprofitable turboprops and into the regional jets that its larger partners prefer.

Vertical Stabilizer

"The stock has certainly had a nice run, but there's a lot of opportunity left at this company," said Anthony Cristello, airline analyst at BB&T Capital Markets. (BB&T hasn't done banking for Mesa.) "As long as they grow their ability to continue financing aircraft, there's a material opportunity for long-term growth with US Air."

Cristello isn't alone -- six of the nine analysts covering the company have it rated at buy or better and none with a sell rating. In comparison, only four of the 14 analysts covering Southwest have it at buy or better, with two analysts calling it a sell.

There's reason for optimism. With Mesa trading between $6 and $7 a share, its price-to-earnings multiple is about 7.5 times 2004 earnings. That's less than Southwest, currently trading at 29.2 times 2004 earnings, and also JetBlue, which goes for 22 times 2004 earnings.

Investors seeking to avoid the labor showdowns recently seen at AMR ( AMR) can sleep easy buying Mesa. Last quarter, the company signed a 4 1/2-year contract with pilots and extended its deal with flight attendants, making labor negotiations a relative nonissue for the next few years.

Drag Coefficients

But investing in airlines, even ones with apparent upside, is always risky, and it's important to consider Mesa's potential pitfalls.

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