AMR Corporation (AAMRQ), US Airways Group, Inc. (LCC): Bankruptcy Has Been Good for American Airlines

Forward multiples

Now that the airlines are putting together multiple years of solid earnings and the weakest link in AMR Corporation (OTCMKTS:AAMRQ) is about to turn a rare profit during the second quarter of the year, the market might need to start reconsidering valuation multiples. As of now, all the major airlines are trading at multiples of 6 times 2014 earnings or lower. As the chart below shows, even using the 2013 estimates only United Airlines tops out above 8 times earnings–an earnings multiple that remains considerably below the 15 to 16 times for the market as a whole.

DAL Forward PE Ratio data by YCharts

Bottom line

As the weakest link in the airline industry starts turning in profits even prior to finalizing the merger with US Airways Group, Inc. (NYSE:LCC), the industry as a whole should benefit. Investors need to reconsider the airline industry and possibly start using more normalized earnings multiples for an industry that has historically struggled. On top of that, the dramatically improved results at AMR Corporation (OTCMKTS:AAMRQ) augers well for the combined financials of the new American Airlines. US Airways Group, Inc. (NYSE:LCC) already trades at the lowest multiple and could be in line for an expansion of that multiple along with the industry as a whole.

The article Bankruptcy Has Been Good for American Airlines originally appeared on Fool.com.

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