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Clear Skies Ahead for Airline Investors

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Maxim Group's Ray Neidl says airlines are in better shape today than they were years ago, meaning higher yields and greater growth potential for the industry. Although airline stock prices could remain "soft," Neidl expects airlines to beat last year's strong profits, the veteran airline analyst tells Breakout.

The key factors that have lifted the airline industry in the past two years are cost cuts and capacity cuts; without those measures airlines might not have survived the downturn, Neidl says. In contrast to previous years, all airlines this year have shown "price discipline" -- including Southwest Airlines (LUV), which previously has bucked industry-wide pricing trends. Since December 2010, airlines have successfully implemented eight price hikes with little pushback from fliers. In fact, despite higher fares and additional fees for baggage and food, demand from both business and leisure consumers remains strong.

The airline stocks that Neidl particularly likes are the "niche" carries such as COPA (CPA), Alaksa Air Group (ALK), Hawaiian Holdings (HA) and Allegiant Travel Company (ALGT). He says these carriers exhibit strong long-term growth prospects "without upsetting the status quo of the major legacy carriers' capacity controls."

Neidl gives one last piece of advice for consumers traveling in the busy spring/summer flying season: Be flexible and shop early. The trend has been, and will continue to be, higher ticket prices —- and with a reduction in capacity, airlines can offer fewer discounted seats.

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