12-Apr-2010 4:29 PM

US Airways lower; American Airlines not threatened by potential merger; Continental up

North and South American carriers’ shares were mixed on Friday (09-Apr-2010), following a surge on the day prior on news of a possible merger between United Airlines (+1.3%) and US Airways (-3.1%). However, a number of forecast losses for US carriers for 1Q2010 pushed shares back down to earth on Friday.

In the wider market, the Dow (-0.6%) was up, pushed higher by the energy sector. Investors were also positive ahead of the start of reporting season this week.

US Airways lower

US Airways' (-3.1%) shares dropped back after reaching 52-week highs the day prior, on reports of a potential merger with United Airlines (+1.3%). The merger would reportedly be an all-stock deal, with United paying US Airways shareholders a premium similar to that of the Delta-Northwest merger. The carriers are also negotiating a break-up fee and reverse break-up fee of between 2-6%, to be implemented if either carrier walks away from the deal.

American Airlines not threatened by potential US Airways/United Airlines merger

American Airlines (-1.0%) shares fell, despite CEO, Gerard Arpey, stating during trading that the carrier is not threatened by reports of a United-US Air merger and is well positioned with hubs at Dallas, Chicago, Miami, New York and Los Angeles.

Mr Aprey stated, “fewer carriers would probably be better for the industry, but not (be) a panacea. I don't think necessarily that consolidation is the answer to all of the economic challenges that the industry faces. I don't think that is the silver bullet for solving some of the industry's financial challenges. Irrespective of what may or may not happen vis-à-vis consolidation in the airline industry, I think our company is very well positioned".

Jesup & Lamont analyst, Helane Becker, stated she expects American to remain out of merger and acquisition activity until it is able to negotiate some of its labour contracts. Jesup & Lamont also expects the carrier to report an earnings per share loss of USD1.43 for 1Q2010. Consequently, the group stated it maintains a ‘Hold’ rating for the airline. American is due to report its 1Q2010 financial results on 15-Apr-2010. SmarTrend meanwhile stated its analysts expect the carrier to report an earnings per share loss of USD1.19, on sales of USD5.1 billion. In the previous corresponding period, American reported an EPS loss of USD1.30, on sales of USD4.8 billion.

SmarTrend analysts also expect JetBlue (-0.2%) to report a loss for the quarter, but expect Southwest (-0.8%) to post a profit.

Continental shares expected to trade higher

Continental Airlines (+1.4%) was up after Jesup & Lamont reiterated a ‘Buy’ rating on its stocks during trading, with a target price of USD26. Becker stated the company believes Continental’s shares can trade to 10 times estimated 2011 EPS of USD2.60 per share. Jesup & Lamont now expect the carrier to report an EPS loss of USD0.96, down from its previous estimate of a profit of USD0.10, due to higher non-fuel costs and weather-related cancellations in Feb-2010 and Mar-2010.

SmarTrend meanwhile stated Continental’s shares have risen 6.4% since it identified an Uptrend in its shares on 22-Feb-2010. The carrier is now above its 50-day moving average of USD20.60 and 200 day moving average of USD15.70. Continental ended Friday’s session at USD21.53.

Also in today’s America Airline Daily:

Delta applies to launch Detroit-Sao Paulo service, as part of Detroit expansion;
JetBlue to continue to offer a free first checked bag;
US senator seeking a ban on carry-on baggage fee charges;
Jetstar announces interline agreement with Air Canada;
Dominican Republic carriers increasing US operations;
Western Air receives charter licence for Air Jamaica routes.

North & South America selected airlines daily share price movements (% change): 09-Apr-2010