Economic recovery is real, and your portfolio should be exposed to the sector to gain capital. The carriers mentioned here offer an appealing investment opportunity.
Look at these airlines for capital appreciation
Delta Air Lines, Inc. (NYSE:DAL) continues to post solid returns. The stock trades at 20.9 times earnings, well below the industry’s average of 34.5. According to its most recent quarterly earnings report, its operating revenue remained unchanged, but due to declining costs of operation in the fuel and maintenance areas, its net income surged from a net loss of $168 million, or $0.20 per share for the same quarter a year ago, to a net profit of $685 million, or $0.81 per share.
Although debt levels are still high at $10.2 billion, debt has been reduced by nearly $7 billion since 2009. This is relevant because the carrier has saved $43 million in interest yearly. What’s more is that the airline is committed to lowering its total debt to $7 billion by 2017.
Delta Air Lines, Inc. (NYSE:DAL) generated $730 million in free cash flow in the last quarter, and $1.2 billion in the first half of 2013. This shows a healthy balance sheet, and the company should not have issues paying its obligations. The carrier implemented a $1 billion share repurchase program in May, and it will return over $50 million to shareholders in the form of dividends. The carrier offers $0.24 per share, or 1% dividend.
On the growth side, the carrier is posed for a bright future. In the previous quarter, the company inaugurated the $1 billion Terminal 4 at JFK International Airport in New York. This will expand its presence in international markets. Delta Air Lines, Inc. (NYSE:DAL) is also remodeling Terminal 5 at LAX Los Angeles airport. It will feature a larger ticketing lobby, screening checkpoints, new baggage carousels, and renovations to the Delta Sky Club. Additionally, the carrier is expanding services to key locations by increasing the number of daily flights to cities like Portland, Seattle, and San Francisco.
In brief, the investment prospectus for Delta Air Lines, Inc. (NYSE:DAL) looks excellent, and this company’s stock may be a great opportunity.
US Airways Group Inc (NYSE:LCC) also reported a strong second quarter. The stock trades with a price-to-earnings ratio of 6.4, which may be considered as a value play.
In the previous quarter, revenue rose by $100 million to $3.86 billion. However, its net income declined from $306 million, or $1.54 per share, to $287 million, or $1.40 per share. The net profit was impacted by a one-time non-cash provision of income tax for $67 million. Thus, the carrier’s net income increased year-over-year.
One of the most interesting developments from this quarter was the addition of the route from Charlotte, S.C. to Sao Paulo, Brazil. This service allows for one-stop service from 65 cities in the United States to the most important economic center in South America. Therefore, you may expect revenue to rise considerably. This new route is also significant because long-haul flights provide the best operational margin per seat.
Furthermore, the carrier has priced $820 million of two classes of enhanced equipment trust certificates. The proceeds from this offering will be used to acquire 18 Airbus aircraft, scheduled to be delivered between September 2013 and June 2014. The addition of new aircraft is necessary to meet increasing passenger traffic.
As an example, June 2013 posted record revenue passenger miles. The company’s RPM rose 7.5% from 5.8 billion to 6.2 billion. Therefore, the carrier needs to add new aircraft to capture as many customers as possible. Its available seat miles rose by 5.3% to 7 billion. Finally, its load factor rose by 1.7 points to 88.2.
In brief, the carrier is expecting more passenger traffic, and it is adding additional seat miles in the form of new aircraft to bring higher revenue. Therefore, the stock may be posed for more upside.
Spirit Airlines Incorporated (NASDAQ:SAVE) is another major airline posed for growth. The stock trades with a P/E of 22.3. The carrier posted significantly higher profits in its most recent quarterly earnings report. Its revenue rose by 20% to $407 million. Its net income rose from $35 million, or $0.48 per share, to $42 million, or $0.58 per share year-over-year. Last, its free cash flow expanded from $83 million to $101 million year-over-year.
The carrier is also experiencing strong passenger traffic. According to its June monthly traffic report, revenue passenger traffic revved up by 25% to 1.0 billion. To meet such a strong demand, the airline added 22% more available seat miles, reaching a total of 1.16 billion. Its load factor increased by 2.2% to 88.3%.
Thus, Spirit Airlines Incorporated (NASDAQ:SAVE) is showing signs of growth with the addition of new aircraft. According to the investor update released in July, the carrier will operate 79 aircraft by 2015, up from 54 today. The carrier will take delivery of 22 Airbus A320’s and one A320 Neo. What’s more is that the company has ordered 20 A321 planes, on top of the existing order for 96. Only a company confident in its revenue-generation ability would order this amount of aircraft.
The foolish conclusion
Your portfolio needs to be exposed to the recovery industry. Delta Air Lines, Inc. (NYSE:DAL), US Airways Group Inc (NYSE:LCC), and Spirit Airlines Incorporated (NASDAQ:SAVE) offer compelling investment opportunities, and they could be great choices for your portfolio.
The article How to Gain Exposure to the Airline Industry originally appeared on Fool.com and is written by Robinson Roacho.
Robinson Roacho has no position in any stocks mentioned. The Motley Fool owns shares of Spirit Airlines. Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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