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Why flight cancellations won't hurt airlines

Talking Numbers
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Why flight cancellations won't hurt airlines

Along with snow, the wintry weather is keeping planes on the ground across the United States.

This past month, 40,000 flights were canceled in the US – more than four times the previous two Januarys combined. And, Thursday’s latest storm has delayed or canceled an additional 6,000 flights.

Yet airline stocks took off last year and are still off the ground in 2014 even while the overall market is down. In 2013, the NYSE ARCA Airline Index (the XAL) gained 53%; it’s up 3% year-to-date. Compare that to benchmark S&P 500 index which added 29% in 2013 and is down just under 1% this year.

Airlines were once considered the terrible investments but the industry has been turning around. The XAL has nearly quadrupled in the last five years.

So, is this winter’s nasty weather a reason for airline investors to worry? Not really, says CNBC contributor Gina Sanchez, founder of Chantico Global.

“Obviously, those cancelations had an impact to margins,” says Sanchez. “But… over the longer term, airlines have had actually very, very good pricing power.”

Sanchez sees airline margins improving after the end of the winter. “I'm actually quite optimistic about airlines,” she says.

Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, is also bullish on airlines based on charts of the XAL.

“What I see makes me very optimistic about airline stocks here,” says Ross, who sees a long-term head and shoulders bottom that has since broken out to 12-year highs. “That tells me stocks could have significant upside here.”

If the index can break above a long-term downwards-sloping trend line, it can move significantly higher, he says.

“I'd still be a buyer here even though we're up 500% in this index from just the 2009 lows alone,” says Ross. “[It’s] mot clear skies ahead, but I do like the airlines here.”

To see the rest of the discussion on airlines with Sanchez on the fundamentals and Ross on the charts, watch the video above.

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