Delta vs. peers
Year-to-date, Delta’s stock has appreciated approximately 65%, which is much more impressive than United Continental Holdings Inc (NYSE:UAL) and US Airways Group, Inc. (NYSE:LCC), which have seen stock appreciations of 32% and 19%, respectively.
Perhaps quality service really does lead to better financial results. For example, Delta ranked 5th in a 2013 Airline Quality Rating study done by Purdue University and Wichita State University. The study is based on four key categories: on-time performance, baggage handling, customer complaints, and involuntary bumps. United Continental Holdings Inc (NYSE:UAL) ranked 12th in this study, which has damaged United Continental Holdings Inc (NYSE:UAL)’s reputation.
Furthermore, Delta sports a stronger net margin of 4.75%, versus a negative net margin of (1.51%) for United Continental Holdings Inc (NYSE:UAL). US Airways Group, Inc. (NYSE:LCC) is at least in the same ballpark as Delta in this area, with a net margin of 4.36%. That said, US Airways Group, Inc. (NYSE:LCC) finished even lower in the aforementioned study, with an industry rank of 13th. However, those trading US Airways Group, Inc. (NYSE:LCC) aren’t doing so on that news.
These traders are more interested in the potential merger with American Airlines, which was recently opposed by the U.S. Justice Department, six attorney generals, and the District of Columbia. While Delta’s stock is somewhat affected by this news, it’s a safer play, since the company’s not directly involved with this merger dispute.
Regulators and critics worry that this merger, which would create the largest airline in the world with $40 billion in annual revenue, would hurt travelers by reducing airlines’ competition, and increasing their power to hike prices and fees. Therefore, a merger wouldn’t just help US Airways Group, Inc. (NYSE:LCC) and American Airlines, but other airlines as well, including Delta Air Lines, Inc. (NYSE:DAL).
Delta’s short position of just 2% should be somewhat comforting to investors, especially considering the whopping 26.30% short position on US Airways Group, Inc. (NYSE:LCC). However, it’s important to remember that airlines don’t make good long-term investments. Consider the chart below:
Conclusion
Despite upside moves for airlines over the past several years, based on historical trends, no airline should ever be considered as a long-term investment. While Delta Air Lines, Inc. (NYSE:DAL) has consistently improved its business by executing on its strategies, the industry as a whole is now seeing downside stock momentum. Therefore, the window of opportunity to take advantage of a good upside trade has likely been lost.
The article Strategy Execution Might Not Be Enough for This Airline originally appeared on Fool.com and is written by Dan Moskowitz.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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