Midday Report: Airline Stocks Soar, in Spite of Sequestration

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Airline stocks have been soaring over the past year, and the latest round of earnings reports from the industry could add to the momentum.

All of the major carriers beat Wall Street expectations, even though some are still struggling to post consistent profits.

And then there's the budget sequestration, which is angering airline executives, members of Congress and the flying public. That's because the mandated spending cuts have forced the FAA to reduce staffing levels in air traffic control towers, which has caused major flight delays this week, mostly in the East and the Midwest.

Airlines and air traffic controllers - Getty Images
Getty Images
The FAA reports significant travel delays today at Chicago's O'Hare Airport, as well as the three New York area airports – JFK, LaGuardia and Newark. There have also been problems this week in Los Angeles, Dallas, Las Vegas, Denver, Miami and Tampa.

The airlines are worried that travelers will blame them for the delays. Some airlines are warning the bottlenecks could reduce bookings heading into the summer travel season.

Thousands of flights have been delayed or cancelled since the rolling staff furloughs began last Sunday. That's forcing air traffic controllers to put more distance between planes in the air, as well as those taking off and landing, in order to maintain safety.

That adds to the normal problems created by bad weather, because air traffic controllers have fewer options to re-route flights. An airline industry trade group wants the FAA to waive restrictions on how long passengers can be kept on the runway to accommodate the flight delays, and to avoid worsening the disruptions.

All of this angst is leading to new calls for Congress to act. Some want to allow the FAA to reallocate its funds to stop the furloughs, while others want to use this mini-crisis as the impetus to strike a broad budget agreement.

Now let's go back the good news for the airlines and for investors.

Over the past year, shares of US Airways (LCC) have soared 73 percent. It's in the midst of merging with AMR (AAMRQ), the parent of American Airlines.

Southwest (LUV) is up 69 percent from a year ago. Delta's (DAL) up 59 percent, and United Continental (UAL) 36 percent.

And all beat analysts' estimates for the first quarter, which is traditionally the weakest period for the industry. In addition, they all report that some key measures of growth and profitability improved in the quarter.

–Produced by Drew Trachtenberg

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Midday Report: Airline Stocks Soar, in Spite of Sequestration

If you have a child in public school, watch out: $406 million is scheduled to get axed from the Head Start budget, which means that 70,000 kids will be kicked out of the program. Another $840 million is going to get pulled out of special education programs, and the White House estimates that another 10,000 teachers' jobs will be put at risk.

If you're planning to fly anywhere, be sure to pack an extra paperback: The TSA's airport security budget will be cut by $323 million, which means that your already-long check-in line will get even longer. And, while we're at it, it looks like there will be about 10 percent fewer air traffic controllers on the job, which is sure to slow things down even more.

Remember the floods and hurricanes that have devastated large swathes of the country over the past few years? Remember all the complaints we heard (and made) about FEMA's sluggish response to those disasters? Well, get ready for more of the same: Sequestration is going to cut $375 million from FEMA's disaster relief budget.

If you like meat -- or any food, really -- now might be a good time to stock up. The food inspectors who make sure your ground beef isn't ground horse and your chicken isn't a petri dish of harmful bacteria are about to be furloughed. Even non-carnivores are facing bad news: After a $206 million cut to its budget, the FDA will have to cut back on most of its food inspection programs.

Sequestration won't be bad news for everyone: If you're a criminal, it might be cause to celebrate. After all, with $355 million being cut from prison funding, convicts could be out on the street sooner than they expected. And, with $480 million being cut from the FBI's budget, if you've committed a crime recently, you might not need to worry as much about covering your tracks.

If you're a virus, things are looking up for you and your relatives, too. The National Institutes of Health are losing $1.6 billion and the Centers for Disease Control will say goodbye to $323 million. From research to public health programs, this will translate into a real downgrade to our nation's health care backbone.

Unfortunately, things won't be great if you want to take a vacation: With $110 million being cut from the National Park Service budget, many park services will be cut back or closed. In other words, if you're one of the 250,000 people who were planning to visit the Grand Canyon this year, you should prepare for a delayed opening and reduced options.

While not all federal student aid programs will take a hit in 2013, sequestration is on track to make things tough for low-income college students. The Supplemental Educational Opportunity Grant program, which can give a needy student up to $4,000 a year, will likely be cut by 8.2 percent, as will federal work study programs. And for students who want to borrow money, student loan origination fees will also go up.

Here's a silver lining to sequestration: It will be educational. For years, this nation has been in the midst of an argument about what role the federal government has and should have in our daily lives. For anyone who has wondered what the government really does for them, the next few months will be an outstanding lesson in where, exactly, your tax money goes.

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