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

Page 1 of 2

US Airways Group Inc (LCC)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.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!