2011's Best and Worst Airline Stocks

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What a crazy year it's been for investors. The S&P 500 jumped up more than 8% by May, only to turn around find itself down more than 10% in August, mainly a result of the European debt crisis and Washington's inability to agree on a solution to our debt dilemma. Now, at the end of December, the S&P has fought back and is poised to end the year essentially flat.

But while the markets as a whole didn't change much overall for the past 52 weeks, most airlines had a year to forget.  

Here's a list of how the airlines performed in 2011.

Company

Percent Return in 2011

Alaska Air Group32.0%
Allegiant Travel9.0%
Ryanair Holdings(0.7%)
United Continental (NYS: UAL) (20.4%)
JetBlue (NYS: JBLU) (21.9%)
Southwest (NYS: LUV) (35.3%)
Delta (NYS: DAL) (35.6%)
US Airways (NYS: LCC) (48.2%)
GOL Linhas (NYS: GOL) (52.5%)
AMR (NYS: AMR) (93.0%)

Source: S&P Capital IQ. Returns as of Dec. 28.

The shaky economy in 2011 certainly took its toll on many of these companies. The airline industry is a cyclical industry; when people have more disposable income in good economic times, they take more trips, and vice versa in poor economic climates. Thus, when the economy flounders, like in 2011, these companies tend to as well.

The big news this year for airlines was American Airlines' parent company AMR's decision to file for bankruptcy in late November. The company had tried unsuccessfully to come to an agreement with its pilots union in order to cut costs, but was unable to do so. That led the company to seek bankruptcy protection as a way to pare down its massive debt burden and reduce its costs.

The fact that AMR's stock is down 93% is not surprising. The shares will almost certainly be worthless soon once the company enters bankruptcy, and the current stock will not carry over once the company emerges from bankruptcy. While this is a painful step, expect American to emerge as a stronger, more efficient company after bankruptcy.

Despite their share prices struggling through 2011, the airlines were not shy about forking over big bucks to upgrade their jets to more fuel efficient planes. Before its bankruptcy, AMR placed an order of 460 new fuel efficient jets, 260 from Airbus and 200 from Boeing. The company said it still plans to go through with the deal despite its bankruptcy.

Two weeks ago, Boeing announced its largest commercial deal ever, with an order of 208 737s from Southwest. The deal would be worth around $19 billion at list prices, but Southwest is expected to get a sizable markdown.

United Continental, down "just" 20%, is expected to be the most profitable U.S. airline in 2011. The company has increased year-over-year revenues for seven straight quarters, and has been solidly profitable for the past two. Delta has also been in the green for the past two quarters and is the leading airline at Hartsfield-Jackson Atlanta International, the world's busiest airport. Delta recently expanded its presence at New York's LaGuardia Airport by swapping flying rights slots with US Air.

While the performance of airline stocks is often tied to the performance of the global economy, we believe that we've discovered a stock that'll thrive no matter what the macroeconomic climate. To see the company that our chief investment officer has picked out for explosive growth ahead, check out our brand new free report called "The Motley Fool's Top Stock for 2012." You can get instant access to the name of this company by clicking here -- it's free.

At the time this article was published Brendan Byrnes owns no shares of any company mentioned above. The Motley Fool owns shares of Allegiant Travel. Motley Fool newsletter services have recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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