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Zacks Analyst Interview Highlights: Frontier Airlines, ExpressJet, United, Continental Airlines and Northwest

Posted on: Thursday, 11 January 2007, 06:00 CST

Zacks.com releases the latest Analyst Interview. Today's interview is with senior analyst Ann Heffron, who discusses Frontier Airlines (Nasdaq: FRNT), ExpressJet Holdings (NYSE: XJT), United (Nasdaq: UAUA), Continental Airlines (NYSE: CAL) and Northwest Airlines (NWACQ.PK).

A synopsis of today's Analyst Interview is presented below. The full article can be read at http://at.zacks.com/?id=2678.

How do you think [industry consolidation] will affect the smaller carriers in your coverage, like Frontier and ExpressJet?

To date, the main beneficiaries of these trends have been the legacy airlines. The legacy carriers have posted median stock price increases of 41.1% over the last three months and 58.1% over the last six months. This compares to median stock price gains of 1.4% and 0.1%, respectively, for low-cost carriers, such as Frontier Airlines (Nasdaq: FRNT), and 15.7% and 11.9%, respectively, for regional airlines, such as ExpressJet Holdings (NYSE: XJT).

If you think about it, this makes sense. The low-cost and regional carriers have been much less exposed to oil prices for different reasons. The low-cost carriers have typically hedged a greater portion of their fuel costs than legacy carriers have. This has protected them during times of rising oil prices. Conversely, as oil prices fall, the low-cost carriers' profits do not benefit as much.

As to regional carriers, these airlines typically have operating agreements with the legacy partners that cover fuel prices. Thus, any fuel price changes, whether increases or decreases, are absorbed by their legacy partners.

Will United Airlines feel a similar impact, or do you expect they'll be affected differently?

United's (Nasdaq: UAUA) stock has done quite well over this period--in fact, better that the industry. Over the last three months, UAUA stock has increased 54.5% and over the last six months 70.3%. In addition to falling oil prices, United has benefited from merger speculation with Continental Airlines (NYSE: CAL). However, a Continental-United deal also faces a unique problem in that Continental is not exactly a free agent. Northwest Airlines (NWACQ.PK) can block any merger that CAL attempts to undertake due to an unusual agreement between Northwest and Continental. So, in addition to all the other problems that a merger of this size can face, there is the additional hurdle of getting Northwest's stamp of approval. In my opinion, that's a pretty large hurdle.

Read the full interview at http://at.zacks.com/?id=2647.

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Source: Business Wire

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