US analysts warn over airline shares
Analysts in the US are warning investors to steer clear of the major airlines, which began the year by slashing prices on major routes. The analysts believe a potential price war is only one of many problems for carriers such as Delta Air Lines, United, American, Northwest, Continental and US Airways group. Heavy fuel costs, staff problems and pension obligations make them a risky investment, say market observers. “Unless you are a highly risk tolerant investor, avoid airline stocks,” said Brian Hayward, airline analyst at Zacks Investment Research in Chicago. “There will be trading opportunities. If you think you’re good enough to trade on where oil is going to go and you think you’re nimble enough to trade on that information, good luck.” Delta has been forced to slash fares following intense competition from no-frills airlines such as JetBlue and Southwest Airlines. “It is no co-incidence we are seeing simplified pricing. It was inevitable for the industry, given the aggressive growth of low-cost carriers,” said Smith Barney analyst Daniel McKenzie. “There’s probably been no carrier in history that has struck as much terror in the corporate offices of the cyclical majors as JetBlue. That’s what Delta has to respond to.”
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