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Analyst: Airline Stocks Going Up, Up And Away

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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.

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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