Five Airline Operators Hedge Funds Love

#3 United Continental Holdings Inc (NYSE:UAL)

 – Number of Hedge Funds Long UAL (as of March 31): 61
– Total Value of Hedge Fund Holdings (as of March 31): $3.38 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 15.70%

United Continental Holdings Inc (NYSE:UAL) reported better-than-expected earnings for the first quarter, which included EPS of $1.23, which topped estimates of $1.18 per share. The company also bought back $1.5 billion worth of its shares during the quarter, representing an astounding 8% of the float. Despite the buybacks and good earnings, United Airlines’ stock nevertheless fell sharply after the report, mainly due to the company’s worrisome consolidated passenger revenue per available seat mile decline of 7.4% in the first quarter. Given the company’s miniscule trailing P/E of 2.33 and its forward P/E of around 5, many bulls think the bad news has already been priced in. Still, shares are down by 22% year-to-date. Christopher Winham’s Tide Point Capital opened a 450,000-share position in United Continental during the first quarter.

#2 American Airlines Group Inc (NASDAQ:AAL)

 – Number of Hedge Funds Long AAL (as of March 31): 61
– Total Value of Hedge Fund Holdings (as of March 31): $1.5 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 6.10%

Because American Airlines Group Inc (NASDAQ:AAL) doesn’t hedge, the company is more exposed to the rising fuel prices than other airlines. Furthermore, due to the fact that the U.S economy is strong, the company’s labor costs have risen. To retain talent, management has had to institute a new employee profit-sharing program that will pay 5% of pre-tax profit to employees, excluding special items. Some bears fear that low-cost airline competition might eat into American Airlines’ margins too. With all of those factors being in play, there was a notable first quarter decline of 15 in terms of the number of funds in our database long American Airlines. There are still 61 hedge funds long the stock however, as like United Continental, the stock trades at just 5.2-times forward earnings estimates. American Airlines also continues to buy back its stock.

#1 Delta Air Lines, Inc. (NYSE:DAL)

 – Number of Hedge Funds Long DAL (as of March 31): 97
– Total Value of Hedge Fund Holdings (as of March 31): $6.93 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 18.30%

With 97 elite funds holding shares of the company, Delta Air Lines, Inc. (NYSE:DAL) is somewhat of a consensus top airline pick among hedge funds. Like many of its counterparts, Delta beat earnings expectations for the first quarter, with EPS of $1.32 topping estimates of $1.30. The company also bought back $775 million in stock during the quarter. Unlike its competitors, however, Delta’s passenger unit revenue only declined by 4.6% year-over-year, better than many of its peers. Delta’s management has also shown that they are willing to make tough decisions when its comes to cutting capacity internationally in the second-half of the year, when other competitors haven’t taken that step yet. The more conservative culture could make Delta a better bet in the cyclical airline business in the long run.

Disclosure: None