Crunch time for airlines

Victoria
By Victoria March 29, 2013 11:19

Crunch time for airlines

It is the Easter break for many but for our industry that means it is a crunch time of the year. This fact is not lost on the markets where the number of shares sold short in Alaska Air Group, Delta Air Lines, JetBlue Airways, Spirit Airlines, United Continental (Soon to be United), and US Airways (soon to be American Airlines Group) grew yet again for the period between the February 28 and March 15 settlement dates.

Southwest Airlines was the only airline that saw the number of shares sold short decline during this period. Delta, Spirit and US Airlines were the most shorted airline stocks by far. Delta saw short interest rise more than 12% in March to 15.32m shares. Delta currently has a market cap of $14.1bn and a long-term EPS growth forecast of more than 26%. Indeed the markets seem to expect the US airlines to gain a good 7% in 2013.

As we have been mentioning for many years now on this service Spirit is a good bet, the economics are just too good to ignore. Shares sold short in this FL based carrier rose more than 25% in late March 2013 to around 1.06m, more than erasing the 15% fall in the previous period. That is the second highest number of shares sold short so far this year and represents more than 2% of the float. This airline’s return on equity is more than 20%, and the long-term EPS growth forecast is now more than 22%. The operating margin is higher than the industry average. The share price is up about 42% year to date, with more than half of that gain coming in the past few weeks.

What can we say about US Airways? The share traffic has been high for obvious reasons over the past year. They are 34% up this year so far. The long-term EPS growth forecast is 65%, and the return on equity is more than 135%. Also it is worth checking out the P/E ratios of this airline. The share price is up about 24% in the past month, and shares are trading more than 113% higher than this time last year.

So as we all take heart from the great US airline market maybe as a fun footnote for the weekend is to think about how close JPM came to losing out on American Airlines in a big way on their London Whale trades and how much they made ($400m) on calling the correct AA bankruptcy timeframe.

Happy Easter.

Victoria
By Victoria March 29, 2013 11:19
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