Don't ask me why so many people hold airline stocks. Of course there is money to be made in trading, but I am not a trader. And yes, historically Southwest Airlines (NYSE: LUV) has been a good long term hold, but it is still a lousy business. Southwest reported higher profits beating analysts estimates (who cares) by a penny. The stock is still trading down 30 cents as I write to $14.26 from yesterday's close of $14.56.

I do not see them sharing the LUV with its paltry dividend, equally poor ROE of 7.6 and too much debt. Airlines are capital intensive and highly regulated. They are very susceptible to the weather, politics, fuel prices, war and terrorism threats, strikes and competition.

Continental Airlines (NYSE: CAL) reported a 2% increase in profits today and its stock is down too. So what if airlines are reporting increased profits, they all suffer from the same problems and if they manage to squeeze a little profit out of the company lately, it's because they are coming off such lows that the comparisons should be easy to beat. Also there are so many complexities to the airline business that the financial statements are works of art understood by only those with an intimate working knowledge of the business. Continental pays no dividend and has mammoth 5 to 1 debt: LT Debt-to-Common Equity (LFY) = 501.79.

Continue reading Profits up at Southwest, Continental but AMR Corp. is smarter

Profits up at Southwest, Continental but AMR Corp. is smarter originally appeared on BloggingStocks on Thu, 18 Oct 2007 13:33:00 EST. Please see our terms for use of feeds.