Delta, Spirit and Alaska Are Up 35% This Year as Airlines Soar

CHARLOTTE ( TheStreet) -- For years, airline analysts have been proclaiming that this time it's different, that airlines have finally become viable investments.

In the first quarter of 2013, it all seems to be coming true. So far this year, the Arca Airline Index ( XAL) is up 23%. Spirit ( SAVE) shares are up 37%, Alaska ( ALK) is up 35% and Delta ( DAL)is up 34%. United ( UAL) shares have risen 29%. They all lead the S&P 500, which up about 10% this year.

Hawaiian ( HA), down 4%, is the only major airline to show a decline. US Airways ( LCC) is up only 18%, but that can be excused because its shares rose 159% in 2012.

Let's look at a few recent developments in the souped-up world of airline investing, which is reaping the benefits of a shrinking supply of seats, rising demand for seats and fees for everything passengers use besides the seats.

At the JP Morgan investment conference on March 4, Delta President Ed Bastian declared that Delta would show a first-quarter gain for the first time since 2000, when fuel cost 62 cents a gallon, about a fifth of its current cost. "We are on track to deliver our best March quarter in over a decade," Bastian said.

Delta shares rose 7% in the two days following Bastian's early morning presentation.

United shares have suffered because the carrier's operations deteriorated so substantially during its merger integration that customers were scared away. But increasingly, analysts and investors are thinking that United has put its problems behind it. In the first two months of the year, United's domestic and international operations showed on-time rates above 80% for the first time since 2003.

Not surprisingly, US Airways shares declined after the merger with American was announced on Feb. 14, falling 12% by Feb. 25. But they have regained that and then some. Shares closed Thursday at $16.25, or 8% ahead of their merger-day opening.

In a March 1 report, with shares trading at $13.43, Imperial Capital analyst Bob McAdoo wrote: "We believe US Airways is trading at a valuation that does not fully account for actions likely to be taken by the US Airways team in its early weeks and months at AMR." He has an outperform and a $20 price target.

A March 6 recommendation from Jim Cramer on "Mad Money" has benefited the carrier, up 8% since the show aired. Cramer hadn't recommended an airline stock in years, but noted: "I hated the industry before but look at the last airline mergers -- I mean wow." He said the U.S. Justice Department is evaluating the US Airways/American merger just as it evaluated the US Airways/America West merger in 2005. "Once the waiting period ended and it turned out that the justice department was fine with that transaction in late June of that year, America West surged an astounding 54% over the following three months," Cramer said. "I want you in something like that."

As for Alaska, Wolfe Trahan analyst Hunter Keay on March 1 labeled it (along with Delta) a "best idea" and noted that "the airline underappreciated by investors despite the recent run in the stock, as evidenced by its oddly discounted multiple(s) to peers." Alaska has risen 7% since the recommendation two weeks ago.

Spirit is benefiting from a Cramer recommendation on "Mad Money" on Wednesday. Spirit is trading at 11 times earnings, Cramer said, noting: "I think it has more room to run." During the show, Spirit CEO Ben Baldanza told Cramer: "It's unfortunate that in the airline industry we have to remind people that we are a business."

Evidently, this time investors are not dismissing those reminders.

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

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