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Can These Funds Still Soar With Airline Stocks?

It's been a good year for airlines, but plenty of risks remain.

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Airline stocks have been hot lately, and some mutual funds are reaping the benefits--at least in the short term.

The recently consummated merger of United and Continental Airlines is only the latest sign of airline-industry consolidation. The combined United Continental Holdings (UAL) is now the largest airline in the world, surpassing  Delta Air Lines (DAL), which vaulted to the top spot after buying Northwest in 2008.  Southwest Airlines (LUV) recently announced plans to buy fellow low-cost carrier  AirTran (AAI), and rumors of other possible deals have been swirling.

This wave of consolidation, driven by a desire for cost-cutting and economies of scale in a capital-intensive industry, has helped give a boost to airline stocks over the past year. Shares of United Continental are more than triple the price United parent UAL hit in October 2009, and  US Airways Group (LCC) has more than doubled during that time despite a recent pullback. Southwest and  Alaska Air Group (ALK) are also up substantially over the past year, as are overseas carriers such as  Lan Airlines (LFL). A few airline stocks have continued to struggle, notably American Airlines parent  AMR (AMR), which is in worse financial shape than its rivals.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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