US Airways Group, Inc. (LCC): Will This New Airline Be an Earnings Juggernaut?

Moreover, if airline industry profitability improves, lower-cost airlines like Spirit will expand even more quickly and steal traffic from network carriers like American. Spirit has recently been targeting major airline hubs for expansion, and has grown rapidly at American’s home base: Dallas-Fort Worth International Airport. Moreover, as of the end of 2012, Spirit had firm orders for 106 additional aircraft through 2021, compared to just 45 planes in Spirit’s fleet at the end of last year. Spirit clearly plans to grow quickly for many more years, and its low base fares will pressure American and other legacy carriers, keeping economy-class fares in check.

Foolish conclusion
American’s proxy statement includes the usual waivers and disclaimers that investors should not rely upon forward-looking statements. Yet, they seem particularly necessary in this case. Even in a best case scenario, it’s hard to see a pathway to a 9.6% pre-tax margin by 2015. Moreover, United Continental Holdings Inc (NYSE:UAL)’s recent merger integration woes highlight the risks that the new American will face in its first few years. A major computer glitch that led to hundreds of flight cancellations last week points to other risks; for example, American may have underinvested in IT systems in the past decade due to its weak financial position. Investors should be careful to evaluate all of these factors before investing in American or merger partner US Airways Group, Inc. (NYSE:LCC).

The article Will This New Airline Be an Earnings Juggernaut? originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Motley Fool contributor Adam Levine-Weinberg is short shares of United Continental Holdings (NYSE:UAL) and is long Sep 2013 $33 Puts on United Continental Holdings. The Motley Fool owns shares of SPIRIT AIRLINES INC. (NASDAQ:SAVE).

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