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Delta Air Lines, Inc. (DAL), US Airways Group Inc (LCC): Latin American Expansion Is Key for the Growth of These Airlines

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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.

Delta Air Lines, Inc. (NYSE:DAL)

Good metrics are what we want!

Delta Air Lines, Inc. (NYSE:DAL) and US Airways Group Inc (NYSE:LCC) are two major airlines in the United States that also have a worldwide presence. Both companies trade with price-to-earnings ratios lower than the industry’s average of 31.6; Delta Air Lines, Inc. (NYSE:DAL) has a 18.5 ratio, while US Airways Group Inc (NYSE:LCC) has a 5.5. According to their most recent quarterly earnings reports, revenues for Delta Air Lines, Inc. (NYSE:DAL) remained unchanged at $8.5 billion, while US Airways Group Inc (NYSE:LCC)’ revenues increased by 10% to $3.4 billion. Both airlines also offer an excellent investment prospectus.

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.

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