Airline-industry executives in the US are clearly earning their wings. To remain in business and mollify hard-pressed shareholders, they have reduced payrolls, cut flights, and lowered fares.
But what's the outlook for investors?
Despite all the gloom and doom surrounding the industry, some industry analysts say it may be time to buy selected airline stocks and mutual funds specializing in transportation stocks.
Airline stocks took a sharp hit following the Sept. 11 attacks. The American Stock Exchange airline index plummeted 40 percent in the week after the tragedy. For the year, the index is down more than 60 percent, a starker drop than the 13 percent decline in the Dow Jones Industrial Average.
The stock values of United and American - the two carriers whose planes were hijacked in the attacks - fell especially hard. Earlier this month, United's chief executive told employees that unless the carrier curbs its losses, it could go out of business next year. Not surprisingly, that statement sent not just United, but airline stocks in general, downward.
Industry losses are expected to continue. Samuel Buttrick, an analyst with UBS Warburg, anticipates losses this year of about $5.6 billion, and another $2.4 billion next year. Other estimates are much higher.
Still, Mr. Buttrick has generally recommended all major airline stocks, except for America West and US Airways.
Brian Harris, who tracks the sector for Salomon Smith Barney, favors American, Northwest, United, Continental, and Southwest. These carriers, he says, are undervalued and likely to make it through the current crisis.
Raymond Neidl, an analyst for financial services firm ABN Amro, believes investors should consider airlines with strong balance sheets, sound management, and good financial liquidity. He likes Southwest and Alaska Airlines, which were among the few airlines to actually turn a profit during the third quarter of this year.
But Mr. Neidl also views American, Delta, and Northwest as buying opportunities in the months ahead.
Still, he sees no need to "rush to buy airline stocks." Neidl expects no real net profits for the industry until the second half of 2002.
In fact, some experts deliberately shy away from recommending airline stocks.
"Historically, the airline industry is very turbulent," says one stock analyst with a New York firm. "Airlines live and die by cash flow. When times are good, they have it; when times are bad, like now, cash dries up. It's a tough business to run and a tough business to invest in."
Indeed, investors worry that bankruptcies and more fare reductions could depress share prices further. That happened back in the early 1990s, following the Gulf War, a recession, and a sharp cutback in global air travel.
While the possibility of bankruptcies is quite real, the consensus among analysts suggests that most major carriers will survive - thanks, in part, to a massive $15 billion aid package from Washington. In a written analysis, Mr. Harris, of Salomon Smith Barney, says that United, despite the grim statement by its top executive, will also make it through the current crisis. The demise talk, he believes, is designed to remind United employees of the need to hold down costs, including labor costs.
Finally, while selected mergers cannot be ruled out, a wave of them seems unlikely now, experts say, given the need of individual airlines to simply get their own financial houses under control.