Analyst: Airline Stocks Going Up, Up And Away

Thursday, 7 Dec 2006 | 10:02 AM ET

Airline stocks are climbing higher on a holiday travel tailwind. According to the Dow Jones U.S. Airlines Index over the past month--they’re up 9% and more than 17% year to date.

How much higher can they go? On "Squawk on the Street"--CNBC’s Mark Haines asked David Strine--Airline Analyst with Bear Sterns.

Airline Sector Flying High
The airlines sector is up 17% this year. David Strine, Bear Sterns Airline Analyst, shares his take on the carriers, with CNBC's Erin Burnett.

Strine said the cycle is sturdy and his firm is still positive about the group for 3 reasons:

- supply looks like it will be constrained
- the fuel hedges for the low cost carriers are declining so they will need to raise fares
- there's an increasing probability of M&A activity in the industry.

He also said capacity is always an issue in this industry, and there's a window for a year or two where it will be hard to get aircraft. Mechanisms are in place that will keep a cap on the growth of supply - and if that happens while the economy grows, we have a sweet spot.

Strine says on a valuation basis the carriers that look least expensive to his firm are United and Alaska airlines. Bear Sterns has a sell on Frontier .

Analyst Disclosure: AAI, ALK, CAL FRNT are or during the past 12 months have been a non-investment banking client (securities related services) or Bear Stearns & Co. AMR is or during the past 12 months has been a non-investment banking client (securities related services) of Bear Stearns & Co.

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