To The Moon

Spirit Airlines(SAVE) shareholders are set to vote Thursday on its planned with Frontier(ULCC). Are any airline stocks buys now against that backdrop?

The vote, part of special shareholders meeting, arrives as rival JetBlue(JBLU) also tries to buy Spirit. Spirit on Tuesday said it preferred to stick with plans to merge with Frontier, despite multiple efforts over nearly three months from JetBlue — including one on Monday — to sweeten its bid.

Spirit and Frontier agreed to merge in February. Competing offers from JetBlue began in April.

Under an enhanced deal announced last week, Frontier would pay $4.13 in cash per share to Spirit shareholders — up from the $2.13 offered in February — along with 1.9126 shares of Frontier for each share they own. Frontier also raised its termination fee by $100 million to $350 million, should the deal fall through due to "antitrust reasons."

JetBlue, on Monday, raised its breakup fee to $400 million, boosted its prepayment fee to $2.50 per share, structured as a cash dividend to Spirit shareholders. It said its total offer amounted "up to $34.15 per share," when factoring in new monthly per-share payments to shareholders.

Spirit has argued that regulators would likely block a deal with JetBlue, given JetBlue's alliance in the northeast with American Airlines(AAL). The Justice Department has already sued to block the alliance between JetBlue and American, calling the pact anticompetitive.

JetBlue has argued that acquiring Spirit would create an airline better able to compete against the major four U.S. carriers —Delta Air Lines(DAL), American Airlines, United Airlines(UAL) and Southwest(LUV), who control around 80% of the nation's air-travel market. And it said a merger with Frontier carried similar risk.

Further airline consolidation could bring more of what investors like to the airline industry — less competition, less inclination to throw airfare discounts at passengers. But regulators, under the Biden administration, might balk at any deal with Spirit.

Airline Stocks And Rising Fares

Any consolidation would come as consumer prices rise, including for airfares. Airfares rose 12.6% in May, according to recent government data. They are up 37.8% year over year.

Nonetheless, major airlines have been upbeat about demand in the second quarter, and earlier this year reported little pushback to fare-price increases. Southwest, in a filing last week, said "strong passenger bookings and yield strength has continued in June 2022."

Airline stocks analysts say the U.S.' decision this month to lift Covid testing for travelers entering the nation would help international travel. Still, the airlines face rising fuel costs, thanks to Russia's war in Ukraine. And they face an array of staffing issues, particularly related to Covid and challenges bringing in pilots, after airlines steered many of them toward early retirement when the industry tried to cut costs at the beginning of the pandemic.

Flight cancellations across the U.S. have wrecked travel plans. Delta said it would cut flights this summer, in an effort to manage strong demand and avoid service disruptions.

Below, we take a look at the chart action for airline stocks.

Spirit Airlines Stock  $Spirit Airlines(SAVE)$

Spirit Airlines was in a double-bottom base with a 27.98 buy point. Shares were trading at around 23. The stock is down over the past 12 months. But it has found support at its 50-day line and 200-day lines.

Spirit Airlines stock has a 61Composite Rating and a 50EPS Rating. IBD generally recommends investors focus on stocks that have stronger ratings and that are closer to their highs.

Delta Stock  $Delta Air Lines(DAL)$   

Delta stock was well below its 50-day and 200-day lines. The stock'srelative strength linehas fallen over recent days.

Delta'sEPS Ratingis 33 out of a best-possible 99. ItsComposite Ratingis 27.

American Airlines Stock  $American Airlines(AAL)$

American Airlines stock had also moved back below its 50-day line. It was also below its 200-day line.

Similar to Delta and the other airline stocks here, American Airlines has a weaker 29 Composite Rating and a 51 EPS Rating.

United Airlines Stock  $United Continental(UAL)$

United Airlines stock was below its 50-day and 200-day lines.

United Airlines' ratings, as with other airline stocks, are also mediocre. United has a 41 Composite Rating. Its EPS Rating is 52.

Southwest Stock  $Southwest Airlines(LUV)$

Cowen saidSouthwest stockwas the least leveraged airline heading into the pandemic. Raymond James analysts in February said Southwest had a hedge policy in place to use "a combination of instruments" tied to oil for "catastrophic" protection.

Southwest has a 42 Composite Rating and a 66 EPS Rating. The stock was below its 50-day line. It was also below its 200-day line.

JetBlue Stock  $JetBlue Airways(JBLU)$

JetBlue stockhas a Composite Rating of 33, with an EPS Rating of 53.JetBlue(JBLU) is below its 50-day and 200-day lines.

Are Airline Stocks Buys Right Now?

IBD ratings for the airlines are still not great. Bottom line: Airline stocks are not buys right now.

Investors eager to play the recovery could step in once those stocks enter buy zones. But IBD advises investors to seek out stocks with better ratings that are closer to their highs.

source: IBD