Why Airline Stocks Dropped out of the Sky

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of airline stocks dropped today after the U.S. Justice Department sued to block the merger of US Airways Group (UNKNOWN: LCC.DL  ) and AMR, which would make the biggest airline in the country. Delta Airlines (NYSE: DAL  ) wasn't directly involved in the suit, but it also sold off 10% in trading today.

So what: The suit argues that consumers would face higher fares and fees if another airline consolidation is allowed to go through. On the flip side, US Airways and AMR argue that after United Airline and Continental, and Delta and Northwest were allowed to merge they had to do the same just to stay competitive.  

Now what: The answer to whether or not consumers will face higher prices if the merger goes through may be answered with stock prices today. Delta's drop was on initial speculation that a failed merger would lower prices and that a successful merger would create a semi-oligopoly in the airline industry, which should help profits. It will likely take time for the courts to determine if the merger should go through or not, so it will be a time of turmoil for the industry and its investors. The airline industry has shown no ability to generate profits and I'll be staying away from these stocks -- merger or not.

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Related Tickers

9/28/2016 4:00 PM
DAL $39.23 Up +0.02 +0.05%
Delta Air Lines CAPS Rating: ***
LCC.DL $0.00 Down +0.00 +0.00%
US Airways Group CAPS Rating: *