US Airways Group, Inc. (LCC), American to Merge: So What for Airline Stocks?

So the long planned merger between US Airways Group, Inc. (NYSE:LCC) and AMR, the parent of bankrupt American Airlines, is finally going through. The two announced that the boards of both firms approved the $11 billion deal … finally. The firms have given themselves less than nine months to complete the combining of the two companies.

The big question about the merger is, “so what?” Is it going to change the fortunes of the airline industry? I doubt it. I’ve heard talking heads say the merger is part of an important process of consolidating the industry. That’s fine, but I doubt it’s enough to make a real impact without limiting the amount of flights the two produce. And if that happens the company will end up retrenching for a while.

The real issue is that the big carriers are getting beat up by smaller, low-fare airlines. With only three major U.S. carriers left after the merger, there will be limited competition from the big boys. But even a big moose can be brought down by a pack of small dogs nipping at it all day long. I think that’s the future of the airline industry for the next 10-15 years: fewer and fewer trips as the Internet replaces the need for face-to-face meetings and what trips there are being more on the smaller, cheaper carriers.

US Airways

Yes, American will still exist after the merger. That’s great, but the winner here is US Airways. LCC’s chief executive Doug Parker is taking control of the combined company when the merger is complete. Hell, it’s not the firm that’s in bankruptcy, even if it was sort of voluntary. Still, I think that US Airways is a bit inflated right now with all the merger talk. It’s up more than 40% in the last year but a P/E of 4.65 gives a sign that there’s not a lot of buyers out there betting on it long-term. That or the merger mania is already factored in. Take a wait-and-see approach, but I don’t think it’ll be a buy for quite a while.

United Continental Holdings Inc (NYSE:UAL)

Another one of the big flyers and another one I can’t, in good conscience, recommend to you people. UAL has a long and proud history. Even with the firm seeing growth in traffic year-over-year, it doesn’t seem to make sense to bet on a large carrier in these troubled times for the industry. The company is at -2.32 on its EPS and its stock has still grown over the last six months from 18.17 to 26.19. How’s that for confusing? Like US Airways, UAL has a big ‘avoid’ written all over it to me.