U.S. airline stocks can be hazardous to your wealth

By Mark McSherry - Analysis

NEW YORK (Reuters) - When equity analysts qualify their recommendations with warnings like "investing in airline stocks is very risky" and "trading airline stocks can be hazardous to your wealth," you kind of get the picture.

The warnings, which appeared in recent notes from Lehman Brothers and UBS, respectively, are well placed.

Shares of most major U.S. airlines have plummeted during the past year amid record oil prices and a weakening economy, wiping out billions of dollars in stock market value.

Take United Airlines parent UAL Corp (UAUA.O). Its stock has fallen from $51.60 last October to under $8 on Wednesday.

Then there is AMR Corp (AMR.N), parent of American Airlines. It has seen its share price fall from $29.32 last July to around $6.35 on Wednesday.

Some experts believe U.S. airline stocks have now become the domain only of professional traders and speculators who can profit from short-term price movements, or short sellers who make money if stocks decline.

"For long-term investors, these are not investments that they should be looking at," said Brian Nelson, analyst at Morningstar.

"Airline stocks are of a different breed -- the structural features are horrible in terms of the industry," Nelson added.

Sky-high fuel prices and a weakening U.S. economy have stalled the U.S. airline industry's modest recovery from the 2001-2006 downturn. Oil prices have roughly doubled in the past year.

To survive, U.S. airlines are slimming down. They have reduced services and capacity, cut jobs, hiked fares, and added new fees and surcharges. But unless oil prices ease soon, some experts believe these measures might not be enough.

A MATTER OF TIME

At least seven small airlines have filed for bankruptcy or stopped operating in recent months.

And if oil prices do not retreat soon, some analysts believe it is a matter of time before a major airline files for bankruptcy.

"The state of the airline industry is one of disrepair and the industry faces a crisis as oil prices soar," said Calyon Securities analyst Ray Neidl.

Meanwhile, most airline shares keep falling.