Delta Air Lines, Inc. (DAL), Southwest Airlines Co. (LUV), JetBlue Airways Corporation (JBLU): Is Big the New Small in the Airline Industry?

Page 1 of 2

Throughout the 1990s and early 2000s, the U.S. airline industry experienced a dramatic shift as smaller planes – so-called regional jets – became a prominent part of the domestic fleet. Many of these regional jets had 50 or fewer seats, and allowed the large network carriers to offer relatively frequent flights to small cities throughout the country. In most cases, these regional jets replaced larger “mainline” jets that had previously done that flying.

However, skyrocketing fuel prices and labor costs have significantly changed the calculus for airlines in the past five years or so. Small regional jets have become uneconomical, leading most network carriers to reduce their reliance on them: Delta Air Lines, Inc. (NYSE:DAL) has been leading the way in that movement. Even small mainline aircraft are becoming less fashionable. Furthermore, airlines are finding ways to add more seats to the ones that do remain in service.

Delta Air Lines, Inc. (NYSE:DAL)

The increasing trend toward “upgauging” is beginning to improve the cost structures of many airlines, improving profitability. Yet the medium-term outlook is not as rosy. Even though most airlines are keeping their fleet sizes flat, the industrywide shift to larger aircraft will add a lot of new seats to particular markets. This is likely to create a long-term drag on unit revenues that could outweigh the cost savings and hurt future profitability.

A sea change in the air
The move to larger aircraft – and the addition of extra seats on existing aircraft – is almost universal in the U.S. airline industry today. For more than a decade, Southwest Airlines Co. (NYSE:LUV) was only buying one airplane model: The Boeing Company (NYSE:BA) 737-700, configured with 137 seats. However, in late 2010, the company converted part of its order to the larger 737-800, outfitted with 175 seats. The 737-800s began arriving last year, at which time Southwest Airlines Co. (NYSE:LUV) also began a project to add six seats to most of its 137-seat aircraft.

Southwest Airlines Co. (NYSE:LUV) took delivery of 34 737-800s in 2012, and has firm orders for another 44 737-800s through the end of 2014, plus the option to upgrade other future 737 orders to the 800 model. These 175-seat planes will add significant capacity to some routes, as they replace older Boeing 737-300 aircraft with 137 seats, as well as AirTran’s fleet of 88 Boeing 717s, which have only 117 seats.

The AirTran 717s, in turn, are being leased to Delta Air Lines, Inc. (NYSE:DAL) beginning later this year. Delta Air Lines, Inc. (NYSE:DAL) will use some of these planes (which will be reconfigured to have 110 seats) to replace similarly sized DC-9s that are retiring, but for the most part they will replace 50-seat regional jets.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!