The airline industry continues to rebound from lows seen in 2007 and 2008. It was not uncommon to think of the sector as a place where money goes down the drain. However, investors have been rewarded handsomely in present times.
What’s more is that I believe the rally is not over, despite many investors trying to call the top. Therefore, these companies seem to be a great choice for your growth portfolio.
Major airlines expanding
Delta Air Lines, Inc. (NYSE:DAL) reported an improvement in passenger traffic in its July report. Its revenue passenger miles (RPM) increased by 1.7% to 19.4 billion. It is worth noting that its Latin America section had a whopping 10.7% increase in RPM to 1.5 billion. Further, its International section posted a significant 4% increase to 8.3 billion.
For the carrier to meet the demand, it added 2.7% available seat miles (ASM) year-over-year to finish at 22.3 billion. Its load factor declined by 0.8% to 87.0%.
US Airways Group Inc (NYSE:LCC) also reported a gigantic jump in passenger traffic. Its RPM increased by 6.8% to 6.4 billion, and the company added 5.1% more ASM to finish at 7.29 billion. Its total load factor jumped from 86.7% to 88.1%. As with Delta Air Lines, Inc. (NYSE:DAL), the Latin America division saw a 10.9% increase in RPM from 492 million to 546 million. Its Atlantic section also posted a 6.6% increase in RPM.
Latin America is key for growth
The airlines realized that revenues from Latin America are increasing substantially. Further, long-haul flights provide the best operational margins because of the use of highly fuel-efficient aircraft.
Delta Air Lines, Inc. (NYSE:DAL) formed a partnership with GOL Linhas Aereas to expand its presence in the Brazilian Market. Further, Delta Air Lines, Inc. (NYSE:DAL) opened the first Latin American technical operations line maintenance in Sao Paulo.
In addition, the government gave tentative permission to Delta Air Lines, Inc. (NYSE:DAL) to expand its service from Atlanta to Sao Paulo with an additional daily nonstop flight. This should hike the company’s revenue from the Latin America section since the Brazilian city is the most important economic center in South America.
Lastly, the carrier inaugurated a $1.4 billion terminal in the JFK International Airport in New York. Further, it is remodeling Terminal 5 at the Los Angeles LAX International Airport. This should help the carrier expand its international destinations in the future.
US Airways Group Inc (NYSE:LCC) is also expanding operations into Latin America. The government approved the carrier’s request to operate a flight between Sao Paulo and Charlotte, S.C., the airline’s largest hub. This is the second destination in South America after Rio de Janeiro.
Its fleet is also expanding. US Airways Group Inc (NYSE:LCC) priced an offering of $100 million in trust certificates to pay for two Airbus aircraft that were delivered in June. Further, the carrier plans to finance seven Airbus aircraft, scheduled to be delivered between June 2013 and October 2013.
Aircraft makers may also perform well
Provided that airlines continue enjoying strong passenger traffic, aircraft manufacturers such as The Boeing Company (NYSE:BA) may be poised for growth, too. Several companies, including United Continental Holdings, have placed large orders for the flagship aircraft, B787 “Dreamliner”
In the second quarter of 2013, United increased the order of Dreamliners to 65, and it will be the first North American customer of the B787-10. In addition, the company also converted its existing order of 25 A350-900s to A350-1000s, and added 10 more aircraft.
Dreamliner orders should continue to come in strong for The Boeing Company (NYSE:BA), provided that the aircraft is not involved in any serious incidents. Investors remember that these aircraft were grounded from January to April due to a problem with the Lithium-ion battery, and another aircraft caught fire at the London Heathrow Airport in June.
From a financial standing, The Boeing Company (NYSE:BA) posted a 9% increase in revenue totaling $21.8 billion for the second quarter of 2013, compared to the same quarter a year ago. Its net income rose by 13% to $1.08 billion, or $1.41 per share, from $967 million, or $1.27 per share.
My two cents
Airlines are experiencing strong passenger traffic, so your portfolio should be exposed to the sector. Delta Air Lines, Inc. (NYSE:DAL) and US Airways Group Inc (NYSE:LCC) offer an interesting investment opportunity and they may be good additions to your portfolio.
Delta is expanding operations into South America by forming a partnership with GOL Linhas Aereas. Further, the inauguration of the new terminals at JFK and LAX should be beneficial for the company’s growth goals.
US Airways Group Inc (NYSE:LCC) is seeing strong passenger traffic in its international and Latin American markets. Further, the carrier is also expanding operations to Sao Paulo, which seems to be a top destination because of its economic importance. Lastly, the carrier is showing signs of growth with the acquisition of new aircraft. Overall, its revenue should increase in the interim.
Lastly, The Boeing Company (NYSE:BA) should continue to experience strong aircraft orders since airlines across the board have stronger passenger traffic that must be met with the addition of new flights. The Dreamliner should increase Boeing’s revenue substantially in the future. Furthermore, in the previous quarter, the company posted a strong balance sheet that should improve over time.
For these reasons, I recommend these companies as strong buys.
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 1 Reason to Invest in These Airlines originally appeared on Fool.com is written by Robinson Roacho.
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