Analysis: Can U.S. airlines attract investors with better returns?

Thu Mar 14, 2013 11:21am EDT
 
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By Karen Jacobs

ATLANTA (Reuters) - U.S. airline stocks, long derided as investment duds, have been gaining altitude in recent years. Now, some see room for them to fly even higher.

Recent mergers have brought in new, profit-focused managements who are running larger, leaner operations than in the past. Unlike their flashy predecessors who focused on expansion and engaged in costly fare wars to win customers, today's chief executives are number crunchers and lawyers who aim to make their airlines efficient and profitable.

"The days of the larger-than-life, market-share driven management are over in this business -- and that's a good thing," United Continental Holdings (UAL.N: Quote) CEO Jeff Smisek said at an investor conference this month.

Airline CEOs "are very focused on being professional managers" and on "providing appropriate returns for our shareholders."

Delta Air Lines (DAL.N: Quote) acquired Northwest Airlines in 2008, United merged with Continental in 2010 and Southwest Airlines (LUV.N: Quote) bought discount rival AirTran in 2011.

With fewer big carriers competing, ticket prices have risen. The average fare rose about 8 percent to $375 in the third quarter of 2012, compared with $346 in 2008, according to the U.S. Bureau of Transportation Statistics.

If the recently proposed American Airlines AAMRQ.PK-US Airways Group LCC.N merger is completed, the four biggest U.S. airlines will control more than 80 percent of U.S. industry capacity.

"That should translate into what we've already seen since 2009, which is better pricing power," said Robert Mann, an airline consultant in Port Washington, New York.   Continued...

 
Jeff Smisek, Chairman, President and Chief Executive Officer of Continental speaks during a news conference announcing the merger between Continental and United Airlines in New York, May 3, 2010. REUTERS/Shannon Stapleton