Time to Buy Airlines?

Doug Parker must be crazy.

He must be; no one in his right mind would buy shares of a legacy carrier right now. Yet Parker spent $551,464 on Monday to acquire 197,000 shares of US Airways (NYSE: LCC  ) , the airline he runs.

Among Fools, Parker appears to be alone. Those who follow US Airways in our 110,000-strong Motley Fool CAPS community see a crash coming:


US Airways

CAPS stars (out of 5 max)


Total ratings


Bullish ratings


Percent Bulls


Bearish ratings


Percent Bears


Bullish pitches


Bearish pitches


Data current as of June 20.

Pros have a somewhat different take. Legendary investor Bill Miller was buying as of March, for example. The stock is down more than 66% since. Ouch.

Miller also had big positions in UAL (Nasdaq: UAUA  ) , Delta Air Lines (NYSE: DAL  ) , and American Airlines parent AMR (NYSE: AMR  ) , which, in April, got my vote as the industry's "screaming short."

Planes for sale! Planes for sale!
There hasn't been much good news to report since. In May, US Airways pilots said they'd oppose a merger deal with United. Earlier this month, Parker told investors that his carrier would cut capacity by 6%-8% this year and 7%-9% next. And yesterday, per-barrel oil prices closed at $136, up 42% so far this year.

How is Parker buying in an environment like this? Value investing isn't supposed to be the financial equivalent of Russian roulette.

Airline president Scott Kirby told CNBC yesterday that he feels "great about U.S. Airways' stand-alone prospects." Really, sir? My read of your company's most recent 10-K annual report says that US Airways had hedged for only 22% of its anticipated 2008 fuel needs as of December.

What's more, according to Reuters, you agree with the CEOs of soon-to-be-combined Delta and Northwest Airlines (NYSE: NWA  ) , who together asserted in April that prices would have to increase by 15%-20% because most cost-cutting measures have been exhausted.

That's good thinking. Trouble is, when US Airways joined peers, such as Continental (NYSE: CAL  ) , in raising fares recently, the net result was a ... $20 increase per passenger per roundtrip. Talk about chump change; it costs $299 in fuel to fly just one roundtrip passenger. As Kirby put it recently, "There's a lot of tickets that are getting sold for $299 or less."

Not much good can come from that. Unless, of course, you're hoping to book a cheap vacation.

To be fair, US Airways looks cheap. So do its peers. Behold:


Price-to-Book Value











US Airways


Source: Capital IQ, a division of Standard & Poor's.

Nevertheless, I see this as a classic value trap. Too much of book value is tied to intangible assets such as goodwill. Here's what happens when you re-evaluate these carriers on the basis of tangible book value -- derived from assets such as facilities and aircraft.


Price-to-Tangible BV






Not material




Not material

US Airways


Source: Capital IQ, a division of Standard & Poor's.

Not so cheap anymore, are they? US Airways, especially.

Good luck, Mr. Parker. I really hope it works out. But, on this trade, you're on your own.

Taxi to related Foolishness:

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 669212, ~/Articles/ArticleHandler.aspx, 10/22/2016 3:37:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
LCC.DL $0.00 Down +0.00 +0.00%
US Airways Group CAPS Rating: *
AAMRQ.DL $0.00 Down +0.00 +0.00%
BA $135.63 Down -0.21 -0.15%
Boeing CAPS Rating: ****
CAL.DL2 $0.00 Down +0.00 +0.00%
Continental Airlin… CAPS Rating: *
DAL $41.17 Down -0.29 -0.70%
Delta Air Lines CAPS Rating: ***
NWA $9.90 Down +0.00 +0.00%
Northwest Airlines CAPS Rating: *
UAUA.DL $0.00 Down +0.00 +0.00%
UAL Corp CAPS Rating: *