Airline stocks get a lift
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March 15, 1999: 3:21 p.m. ET
Sector rises after United says it will beat targets, leads round of fare hikes
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NEW YORK (CNNfn) - Airline stocks gained altitude Monday, fueled by a flurry of fare hikes and word by United Airlines' parent it will beat Wall Street analyst earnings targets.
Shortly before 3 p.m. ET, the Dow Transportation index, which includes the stocks of six airlines, roared up 103.21 points, or 3.2 percent, to 3,370.72.
United parent UAL Corp. (UAL) said Monday it expects to report earnings of about $1.35 per share in its first quarter and between $10-12 per share for all of fiscal 1999.
That's far higher than the $1.12 analysts expected for the first quarter and $9.12 for all of 1999, according to a survey by First Call Corp., which tracks such results.
United cited a reversal in the decline in domestic revenue strength that began in the fourth quarter of 1998 and continued into early 1999. United also said a 10-day pilot sick-out last month at AMR Corp. (AMR), the parent of rival American Airlines, also contributed to its better-than-expected results.
Meanwhile, airlines gained momentum following Friday's fare increases, which was led by United, hiking business fares 1 percent and leisure fares 3 percent.
Among those to follow suit were American, Delta Airlines (DAL), America West (AWA) and Northwest Airlines (NWAC), which joined the increases on Monday.
Among the Dow transports issues, UAL tacked on 6-5/16 to 73-3/8, Delta added 3-1/2 to 67-1/2, AMR rose 3-5/16 to 61-5/16, US Airways (U) clambered up 3-1/4 to 55-3/4, Southwest Airlines (LUV) climbed 1-3/4 to 34-15/16 and Northwest surged 1-3/16 to 26-9/16.
America West, which isn't in the Dow Transports, fell 5/16 to 17-7/16.
The moves follow a 2-percent increase in business fares and a 4-percent hike in leisure fares earlier this year.
Glenn Engel, a Goldman Sachs analyst, said airlines got a boost from those announcements, and said it perked up interest among investors eyeing cheaper stocks.
"It's partly due to United comments and the fare increases, and partly because they have the lowest P-E multiples around," Engel said.
While investors had been tempted in recent months to step into the sector, a raft of paltry announcements from major airline players kept investors at bay.
"Late last year people knew they looked cheap, but there just wasn't the confidence" in the sector, Engel said.
A lurking question mark about the airline sector, however, is oil prices, which have risen sharply off rock-bottom lows in recent weeks.
Every increase of one dollar in crude-oil prices, Engel said, bites into airline profits about 5 percent. But most analysts have not factored in low oil prices into their projections.
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