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Airlines -- debt-riddled and commonly rumored to be entering bankruptcy -- are frequently highlighted as terrible investments. Companies such as U.S. Airways (NYSE: LCC ) and AMR (NYSE: AMR ) are generally tough sells to investors. In addition, airlines have an extraordinarily high elasticity of demand. For example, for every 1% that income drops, demand for airline travel drops by nearly 6%. In recessions, this sector is hit especially hard.
However, The Wall Street Journal recently reported that the industry may be headed for a recovery. Last month, passenger miles and unit revenue increased by as much as 12% on a year-over-year basis for Southwest Airlines (NYSE: LUV ) . Although discount airlines like JetBlue (Nasdaq: JBLU ) performed better, the legacy carriers have also seen an increase in traffic. According to the Journal: "After a difficult year battling the recession, the airline industry appears to be headed toward a recovery as fuller planes, fewer discounted fares, lower fuel prices and revenue from a variety of formerly free services start to pay off."
However, Delta Air Lines (NYSE: DAL ) remains wary, noting it doesn’t expect the unit revenue comparisons to turn positive until mid-2010.
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