Airline stocks weather industry turbulence

It seems only fitting that the airline industry has figured so prominently in the news recently, seeking to take off from the doldrums of a stock market that, until last week, appeared to be grounded. In just the past few weeks, airline investors have had a lot to watch:

Texas Air Corporation subsidiaries Eastern and Continental got a clean bill of health from Uncle Sam regarding alleged safety problems - although Eastern was warned to get its labor strife under control.

United's parent firm (Allegis Inc.) got its old name (UAL Inc.) back.

Trans World Airlines chairman Carl Icahn turned his attention to capturing control of Texaco.

The Boeing Company has posted successive blockbuster sales contracts.

Perhaps most startling, Pan American World Airways' board threatened last week to sell off most of the company's airline business unless its unions follow through on promised labor concessions.

But if all that turmoil in the skies is enough to make even the most ardent airline investor look to a more stable transportation sector - such as automobiles - there is little reason for despair. ``We feel that the airline industry has never looked better,'' says RoseAnn Tortora, an analyst with the Drexel Burnham Lambert Group.

Last week, of course, Wall Street had never looked better, at least not since April, when the market tested a similar trading range. For the week ending June 10, the Dow closed up 30.41 points, at 2,101.71.

Ms. Tortora particularly likes UAL and the AMR Corporation, which owns American Airlines. ``Both carriers are poised sizewise to take advantage of changes in the industry and market,'' she says. ``Both have dominant route structures, both employ extensive computer systems, both have very strong financial bases.'' And for ``patient,'' long-term investors, she likes USAir.

Not all analysts are quite so enthusiastic about the industry's prospects. Still, there seems to be a recognition that, for now at least, the industry will continue to post gains. ``In terms of industry profitability, the thing that's carrying the carriers now is fare increases,'' says John Pincavage, an analyst with PaineWebber Inc. The average ticket, he says, is up 8 percent over a year ago. For that reason, he expects the industry to post profits of between $1 billion and $1.2 billion for the second quarter, up from $900 million during the same period last year.

But Mr. Pincavage wonders whether the industry ``will be able to sustain its growth later this year.'' The summer months are traditionally good for most carriers, he says. But in the fall, some carriers may have difficulties as traffic drops. Pincavage notes that April was not a particularly good month for the industry compared with a year ago, although May was up. But in April, he says, there was evidence of growing consumer resistance to higher ticket prices.

Looking to next year, if growth in real gross national product in the United states slows to about 1.7 percent, as PaineWebber economists predict, that would not be a ``good environment'' for airlines, Pincavage says.

Last week Pan Am Corporation announced that it would sell off its airline operation, or other assets, if it did not get concessions by the airline's unions. Once considered the premier international air carrier of the US, the airline now primarily serves the Atlantic run. The popular Pan Am shuttle, which the company says it will keep, is a separate subsidiary.

Pan Am stock has been trading at less than $3 a share lately. Does that low price make it a good buy for the individual investor? ``If Pan Am can survive, there is potential earnings power behind that stock,'' says Plickert.

In marketing terms, ``Pan Am is now predominantly a European carrier,'' says Tortora, at Drexel. ``They do well in summer and badly in winter. That means that inefficiencies tend to stand out for them. They've got to get their costs down.''

Pincavage, of PaineWebber, finds many things to like about United and Delta, the former because of its new management team; and Delta, he says, will profit from Eastern's difficulties, since the two airlines have similar route structures.