The airline industry has slowly recovered from the blow it received in 2007 and 2008. This has been aided in part by a global economic recovery. Further, the consumer sentiment’s latest reading was at multi-year highs. Passenger traffic has been strong in the recent past, and it is not likely to dim in the near future. As a result, the companies mentioned herein should be considered for long positions to gain exposure to the industry.
Good metrics are what we want!
A look at Delta Air Lines, Inc. (NYSE:DAL)
Delta Air Lines, Inc. (NYSE:DAL) plans to bring capital appreciation to its investors through a hefty share repurchase program worth $1 billion over the next three years. Furthermore, the company has initiated a dividend offer of $0.06 per share, or 1.28%. The company should not have any issues paying its obligations due to healthy a balance sheet.
The company ended the last quarter with $1.0 billion cash from operations, up from $831 billion. Its free cash flow, although contracted slightly, was $357 million compared to $424 million a year ago. Investors should look for continuing free cash inflow and should expect dividend hikes as well.
So how is the company going to bring higher revenues in the near future?
The company is expanding operations internationally. The recent grand opening of Terminal 4 at the John F. Kennedy airport in New York will give the company a stronger presence in international markets. This is important because long-haul flights have better operation margins than short-haul since newer and more fuel-efficient aircraft are generally US Airways Group Inc (NYSE:LCC)ed for such operations.
The carrier has also partnered with Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) to increase its exposure to the Brazilian market, positioning it to take advantage of the 2014 Soccer World Cup. The company has also been authorized to operate the Atlanta – Sao Paulo route, which is the most important economic center in South America.
Delta has opened the first technical operations line maintenance in Sao Paulo. The exposure of the airline to the Brazilian market may bring higher revenues in the interim. The company’s stock definitely offers an interesting investment prospectus.
A look at US Airways Group Inc (NYSE:LCC)
US Airways Group Inc (NYSE:LCC) may be another excellent choice to gain exposure to the industry. The company may be regarded as a value play, but there is also potential for growth.
Its shareholders have authorized an American Airlines merger, and the carrier has already elected the Board of Directors for the new American Airlines. This merger positions US Airways Group Inc (NYSE:LCC) as the largest international airline in the world, which is certainly nothing to sneeze at.
There is a general trend for airlines to expand into Latin America, and U.S. Airways is no exception. The carrier was tentatively awarded permanent authority to operate the Charlotte – Sao Paulo route. As with Delta, this airline is seeing great opportunities in the Brazilian markets.
U.S. Airways is in a good position to bring value to its investors. The merger with American Airlines may bring higher revenues due to a higher international exposure. The carrier is also expanding with new routes to Brazil. As a result, U.S. Airways may be a good choice to enter the sector.
A regional airline with huge potential
The company is following in the footsteps of major airlines by inaugurating new routes to Latin America. In June, JetBlue Airways Corporation (NASDAQ:JBLU) started flying from Fort Lauderdale to San Jose, Costa Rica, and also from Fort Lauderdale to Medellin, Colombia. Investors should look for increasing revenues in the fourth quarter earnings report.
The carrier has strong passenger traffic. Its revenue passenger miles (RPM) rose by 7.8% in June to 3.13 billion. To meet an increasing demand, the carrier is adding available seat miles (ASM), meaning that it is increasing its revenue-generation ability. Its ASM increased by 8% to 3.6 billion while its load factor remained unchanged at 85.9%.
Overall, JetBlue Airways Corporation (NASDAQ:JBLU) offers an attractive opportunity for investment because the passenger demand is strong and it is creating new routes to Latin America. This could make it a solid holding in growth portfolios.
The foolish conclusion is…
The airline industry is booming, and several airlines have strong passenger traffic. Delta Air Lines, Inc. (NYSE:DAL), U.S. Airways and JetBlue Airways Corporation (NASDAQ:JBLU) are expanding substantially by opening new routes, particularly to Latin America. As a result, I would highly recommend having these stocks to profit from the airline industry.
Robinson Roacho has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Latin American Expansion Is Key for the Growth of These Airlines originally appeared on Fool.com is written by Robinson Roacho.
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