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Alaska Air Group, Inc. (ALK), Delta Air Lines, Inc. (DAL), US Airways Group Inc (LCC): Three Airline Stocks That Are Flying High

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Alaska Air Group, Inc. (NYSE:ALK)After being seriously beaten down, the airline industry is on a road to recovery, having grown about 65% over the last year. In this article, I will look at three companies within this industry, Alaska Air Group, Inc. (NYSE:ALK)Delta Air Lines, Inc. (NYSE:DAL), and US Airways Group Inc (NYSE:LCC), which offer attractive investment prospects.

A company with growing margins

Although Alaska Air Group, Inc. (NYSE:ALK) is not as well-known as other airlines, it is still the sixth largest in the U.S. and, for many, the one offering the best growth prospects. This forecast is based on the fact that it will benefit from declining jet fuel prices and the deceleration of Virgin America’s expansion in the Northwest.

Although the stock has jumped 80% over the past year, it still trades relatively cheap; at 14.4 times P/E, Alaska Air Group, Inc. (NYSE:ALK) trades at a discount to the industry mean of 29.8 (Morningstar). Its forward P/E ratio of 9.65 makes its valuation even more attractive, reflecting an expected growth in EPS of 49%. Several other reasons back the recommendation of buying this stock.

The company has received the highest customer satisfaction rating from J.D. Power for the past five consecutive years. Studies show that customer satisfaction is correlated to higher revenue, client loyalty, and stock prices. Alaska Air Group, Inc. (NYSE:ALK) offers excellent growth and profitability ratios, considerably better than the industry averages.

Last quarter’s results portray an encouraging outlook: on a per share basis, adjusted earnings improved 59% on a 57% increase in net income and a 2% reduction in diluted shares. Despite considerable increases (about $70 million) in non-fuel operating costs and fuel expenses, revenues grew 9%, principally due to an 8.7% increase in capacity.

Analysts agree on the outstanding labor relations present in this company. Its “Performance Based Pay Plan” seems to satisfy employees, management, customers, and investors as it encourages better safety, customer satisfaction, cost control, and maintaining of profit margins through salary bonuses.

A market share leader

Another buy case is Delta Air Lines, Inc. (NYSE:DAL) that recently reported the best March quarter earnings in over ten years. Net profit was up astronomically, from a $39 million loss during Q1 last year to an $85 million income last quarter. Yahoo! Finance highlights three catalysts for this:

“Passenger revenue increased 1.4%, or $107 million, compared to the prior year period. Passenger unit revenue (PRASM) increased 4.1%, driven by a 2.1% improvement in yield.

Cargo revenue decreased 2.4%, or $6 million, on declining freight yields.

Other revenue decreased 1.4%, or $14 million, as a result of lower third-party maintenance revenue.”

In addition, this industry leader provides several other reasons to invest:

The Northwest and Virgin Atlantic acquisitions make it the biggest carrier in the industry and position it to face more comfortably the vicissitudes of this sector.

The previously mentioned increase in revenue is a result of investments made to improve operating efficiencies and customer experiences; benefits of these outlays are expected to continue to drive Delta Air Lines, Inc. (NYSE:DAL)’s revenue in the near future. Zacks analysts estimate a 4% to 6% year over year improvement in unit revenue.

Over $3 billion in investments will be deployed during 2013 in order to ameliorate Delta Air Lines, Inc. (NYSE:DAL)’s product offering, services, and airport facilities. Ancillary revenues are expected to keep on improving as these new features and services are launched. Morningstar analysts estimate that these activities could add about $1.5 billion in revenue each year.

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