Analysts Predict Airline Stock Growth In 2011

As air transport companies tabulate full 2010 earnings and operational performance metrics, market analysts started sending 2011 predictions for investors. The majority of the financial gurus express cautious optimism for airline profits this year.

Ray Neidl, senior aerospace specialist for Maxim Group, believes that the U.S. airline industry could post earnings of at least $5 billion for 2010, “with ‘street’ expectations for about a 20% increase in 2011.” He adds that the figure could be higher if the economy resurges more than the anticipated moderate pace predicted for this year. He also forecasts that U.S. carriers will add “minimal ASM [available seat mile] growth,” with the largest increase from international routes. “And Latin carriers will continue their rapid growth and solid recovery.”

Neidl is confident that all U.S. airline stock could reach that 20% potential but singles out Delta Air Lines, Alaska Airlines, Hawaiian Airlines and Allegiant Air as the strongest prospects.

CRT Capital Group suggests Delta, JetBlue and United Airlines as buy-rated stocks.

Some of the reasons Delta makes the list are its $1.5 billion worth of synergies gained from the merger with Northwest Airlines, its profitable Asia-Pacific routes, good labor relationships and low trading range. United Airlines’ merger with Continental Airlines receives high marks for its disciplined approach, its expanded network, fleet flexibility and expected consolidation of some programs such as the frequent-flier initiative. CRT Capital cites JetBlue Airways’ strong customer loyalty, non-union workforce, low unit costs and “true earnings power” that “is about to be unleashed as a result of recent meaningful changes to its infrastructure, route network and marketing focus” as reason for its investment potential.

Expansion restraint should definitely affect operators’ bottom line year-end postings, as should the merger activity. As Neidl says, “Consolidation not only helped the airlines that were directly involved, but also the whole industry as capacity was rationalized.” He thinks the trend will cascade into this year and possibly into 2012.

To put the airline forecasts in perspective, aerospace and defense stocks performed “in-line with the S&P 500,” says Wedbush analyst Kenneth Herbert. (S&P, like Aviation Week, is a unit of the The McGraw-Hill Companies.)

However, “commercial aerospace firms fared much better than traditional defense firms,” and those with aftermarket elements generally outpaced those without, explains Herbert.

“We believe the spike we saw in the third quarter in the aftermarket business will continue at least through the first half of 2011,” he says in an equity outlook report. “The real question in our mind is what the strength will be like in the second half of 2011 and into 2012 for the aftermarket.”

Airline aftermarket growth slightly trails air transport upticks usually, so if the airline analysts are right about a moderate growth in 2011, the aftermarket also should be OK.