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US airline stocks 'took a beating' in 2011

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Airlines for America (A4A) chief economist John Heimlich is taking little comfort from the fact that US airlines were profitable for the second consecutive year in 2011. He points out that net profit margin was only 0.3% despite a strong revenue performance and carriers placing increasing emphasis on controlling nonfuel costs.

Whether Wall Street is impressed enough with airlines' newfound profitability to end its aversion to the industry is one way to gauge US carriers' health, and 2011's stock performance was nothing to boast about.

"The stocks took a beating last year with three exceptions," Heimlich told reporters during a Tuesday briefing in Washington. Spirit Airlines, which launched an IPO last year, saw its stock price rise 35% in 2011, he said. Alaska Air Group's stock was 32.5% higher year-over-year on Dec. 31 and Allegiant Air's stock increased 8.3%. But the rest of the US airlines saw their stocks lose altitude despite last year's profitability.

Bankrupt American Airlines' stock price plunged 95.5% in 2011 while US Airways' stock dipped 49.4%, Delta Air Lines fell 35.8%, Southwest Airlines dropped 33.9% and United Continental Holdings sank 20.8%. JetBlue Airways' stock fell 21.3% and Hawaiian Airlines dropped 26%.

Heimlich noted that the value of Starbucks, in terms of equity market capitalization, is $36.3 billion, more than the entire US airline industry combined ($30.7 billion). For some perspective, Microsoft and Apple are valued at $263.1 billion and $490.2 billion, respectively.

Of course, an 0.3% profit margin (2% excluding American), as modest as it may be, is a marked improvement over the US airline industry's average profit margin of negative 6.3% from 2001-2009. A4A president and CEO Nicholas Calio conceded that US airlines had a "lousy business model" during that period, often "flying domestic passengers for less than cost."

He said it is important for airlines to convey to passengers the value of the service being provided, something the industry has failed to do in the past: "We do have to make people understand, 'This is what you pay to fly'… People think they can just go anywhere at any time."

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