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Soaring jet fuel prices have grounded interest in airline companies. But investors might miss out on some compelling returns if they avoid the sector, Will Randow, an airline analyst at Citigroup Global Markets, tells BNN.
Randow says that while fuel prices are increasing at a faster pace than oil, airline companies have been able to cope by raising prices.
“In the U.S. and Canada we’ve seen six sequential fare increases over two months…those have stuck pretty well,” he says. “Overall fares are up over 10 percent.”
Randow is eyeing two airline companies in particular: Air Canada (AC.B-T) and Alaska Airlines (ALK-N).
He says Air Canada is generating $500 million in free cash flow that it’s using to pay down debt.
Alaska Airlines has been profitable since 2006, and Randow says it is one of the few carriers generating an admirable return on invested capital.