"I am going to do something unprecedented here on Mad Money. I'm going to recommend the stock of an airline, an industry I have outright hated for at least 10 years," Jim Cramer said on Tuesday's broadcast.
Wow! Cramer typically says never own an airline under any circumstances. Usually he goes on and on about how the industry is a mess.
"It's true. In the past, I would have said to sell without a second thought," Cramer admitted.
But that was the past – times they are a changin'.
"Today, I'm willing to come out right here, right now, and say that I'm bullish on the entire airline sector for the first time in well over a decade, and that US Airways is the best stock of the bunch."
Holy Cow! What's changed?
A lot. Cramer said until now the industry was just chock-a-block with competition. And there was no way for carriers to compete without lowering ticket prices.
But over the past 6 years there's been a spate of consolidations. Following are the biggest:
If and when that last deal is approved Cramer said the airline industry will have become an oligopoly.
"Once the AMR-U.S. Airways deal goes through, we'll be in a new world order, where the top four domestic airlines handle over 80% of domestic traffic. These mergers have allowed the airlines to cut costs and take out excess capacity. In short, running a major airline is now a viable business proposition."
That also means because of these mergers, the ultra-competitive landscape that made the airline industry uninvestable is now gone, Cramer said. "Again, I'm bullish on the entire airline sector for the first time in many years."
Now, why is US Airways Cramer's favorite pick?
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Again, the catalyst is the merger with AMR.
"Just yesterday Doug Parker, the CEO of US Airways, told a conference that he expects no issues to come up in the Justice Department's review, and the deal is expected to close in the third quarter."
Once the merger is completed, the combined company is expected to become the largest airline in the world, with a fleet of 1500 aircraft.
But the airline won't just be big – it will be powerful.
"You can really see the power of this deal when you look at particular airports. The combined company will control 50% of the traffic at Phoenix, Dallas/Fort Worth, Philadelphia, Charlotte, and Miami. Meanwhile, they'll have 38% share at Chicago's O'Hare airport, and about 21% at LAX. They'll be the number one player on the east coast, the number one player in the middle of the country, and number three on the West Coast," Cramer said.
Also, Cramer looked at the financials and believes the deal should create more than a billion dollars worth of cost savings and new revenue by 2015.
All told, Cramer expects big things from the merger with AMR. And he believes the current price action in US Airways probably doesn't reflect the potential.
"At the moment shares of U.S. Airways are trading sideways, they're range bound," Cramer explained.
He expects the stock to stay that way for as long as the Justice Department continues to review the merger. But in recent years the Justice Department has rarely challenged an airline merger.
"I do think the Justice Department will approve the deal," Cramer said, "And when that happens the management teams from both U.S. Airways and AMR will be able to go out and aggressively talk about how great it is, and then, the stock should soar. That's why I'm telling you to buy U.S. Airways now, while the Justice Department is still holding things up."
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