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Most Annoying Airline (For Passengers) Most Gratifying for Investors?

Dee Gill

Airline passengers may be whining about fees for airport check-in and Cokes on board, but investors are loving these penny-pinching enterprises. It seems that the more creative the fees, the more the share price rises. That was particularly apparent last week, when share prices of the major carriers tanked.

SAVE Chart

Spirit Airlines (SAVE), which charges passengers to put bags in the overhead bins, beat all the traditional carriers and the overall market. Ryanair (RYAAY), which may yet charge passengers to use the toilet, moved in line with the S&P 500. Allegiant Travel (ALGT), which once printed “We’d charge you for this if we could” on its annual report, also fared better than United Continental (UAL), Delta (DAL) or US Airways (LCC). Stock pickers have loved Spirit for some time.

The declines follow weak March passenger figures from the major carriers. They blamed the sequester for limiting air travel, particular the more expensive kind booked at the last minute. Even Southwest Airlines (LUV), an unusually steady source of profitability among the big carriers even while eschewing baggage fees, reported disappointing numbers.

The tightwads of the industry can simply better afford a little slack in business. Operating margins get a lot wider with long lists of fees.

SAVE Operating Margin TTM Chart

Based on trailing earnings, the PE ratio of Spirit and the other upstarts isn't cheap.

Fees also help the balance sheet quite a bit. The fundamentals of Ryanair, Allegiant and Spirit are far better than they are for Delta and United. That helps the share price quite a bit. Spirit, for example, went public in mid-2011, and its share price has more than doubled since then. Allegiant is up 244% since its 2006 launch. Really though, the picture is more mixed. Bankruptcy is very common among airlines, so there’s little useful long-term track record for many. Even low-cost carrier Ryanair has had a very rough life in the market some years. Short term makes all of them look better, but their performances aren’t nicely divided for us between discount carriers and others, as seen in a stock chart, with US Airways leading the way on the news it will merge with American Airlines as the larger carrier emerges from bankruptcy.

SAVE Chart

But it does looks like someone made enough to cover his baggage fees.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.

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