Delta Air Lines, Inc. (DAL), Southwest Airlines Co. (LUV): Airline Stocks are Climbing Steadily Without Signs of Landing

United Continental Holdings Inc

The two largest U.S. carriers, United Air Lines and Continental Airlines, are wholly owned subsidiaries of United Continental Holdings Inc (NYSE:UAL). It also has special associations with a variety of U.S. regional carriers in order to offer jet and turboprop services, which are marketed as United Express. United Continental Holding’s share price followed a similar bullish pattern in accordance with the airline industry, as its stock went airborne to $34.75 on May 17, 2013, from only $22.52 a year earlier on June 4, 2012, constituting a 54.31% gain for the stakeholders. With a negative EPS at -2.21, the company has only managed to produce a 20.45% gross margin over the year, compared to the industry’s 42.53% average.

While the gross margin analysis gives us a comparative scenario among large carriers, the sector’s gross margin has to be analyzed from a perspective where the average is made up of a lot of smaller regional carriers. Being smaller in size, the majority of U.S. airlines could utilize their asset class better compared to the larger national carriers such as Delta or United Continental Holdings Inc (NYSE:UAL).

Conclusion

Aviation is a cyclical industry, and revenue growth is coming up next. However, one of the biggest barriers to growth will be the cost of fuel. As the U.S. economy is booming amid policy support from the government, Mr. Richard Anderson, Chief Executive of Delta Air Lines, Inc. (NYSE:DAL), mentioned in early June that he is not worried about oil-price trends. His optimism is supported by the fact that the U.S. is moving towards self-sufficiency, which will reduce pressure on profit margins. As U.S. carriers are focusing on filling more seats on larger and fewer flights, fuel efficiency is driving demand down as well.

The growth in the aviation sector will likely to continue over the next two quarters as the demand for air travel goes up and fuel prices are forecasted to remain well within these companies’ means.

The article Airline Stocks are Climbing Steadily Without Signs of Landing originally appeared on Fool.com and is written by Mike Thiessen.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Southwest Airlines Co. (NYSE:LUV). Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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