Delta Air Lines, Inc. (DAL), US Airways Group Inc (LCC): The Positive Beat Continues for the Airlines

Page 1 of 2

Only a month ago this article theorized that airlines might finally be investable. Fortunately both Delta Air Lines, Inc. (NYSE:DAL) Airlines and US Airways Group Inc (NYSE:LCC) obliged the theory by reporting strong Q1 earnings. A quarter that is typically the weakest actually turned solidly profitable for two of the market leaders. In fact, Delta Air Lines, Inc. (NYSE:DAL) claimed the highest profit in over a decade.

Delta Air Lines, Inc. (NYSE:DAL)

Unless new competition comes out of left field or the unions get greedy by not being able to resist claiming a portion of all earnings gains, the sector could be poised for a golden decade.

Strong earnings from Delta

Delta Air Lines, Inc. (NYSE:DAL) reported a $124 million improvement in net income over last year by recording a net profit of $0.10 for Q1 2013. The company also generated $1.1 billion of operating cash flow and $457 million of free cash flow — an incredible turnaround from an industry that not only struggles with yearly profits and typically has a dismal first quarter.

The numbers were solidly above the analyst estimates of a profit of $0.06. Passenger revenue only increased by $107 million or 1.4%, but the company along with the sector continues to see operational improvements as passenger unit revenue (PRASM) increased by a solid 4.1%.

Analysts forecast earnings of around $2.60 this year increasing to $3 next year. Based on Q1 results, the stock is extremely cheap as the company easily surpassed earnings in the most difficult period of the year. As an example, analysts expect earnings jumping to $0.95 for the next quarter. These numbers have a higher probability of reaching the high-end estimate of $1.07 unless the furlough issue trips up the friendly skies.

Strong earnings from US Airways

US Airways Group Inc (NYSE:LCC) reported earnings of $55 million, or $0.31 per diluted share. This number easily surpassed analyst estimates of $0.28. The company is off to a solid start prior to the merger with AMR Corporation (NASDAQOTH:AAMRQ) scheduled to conclude in the third quarter. As with the sector and normal of an airline at any period, it lost $0.13 in the first quarter last year.

The company reported record load factors that should only improve with the consolidation of American Airlines. While first quarter revenue increased at a 3.4% clip, the difference maker is that efficiency increased as available seat miles only increased by 1.3%. The increased efficiency allowed the small revenue increase turn the small loss last year into a $77 million improvement this year.

Analysts forecast the company earning roughly $3 this year making the stock extremely cheap based on the ability to beat earnings going forward.

Fuel costs the key

A major key to substantial gains in the sector would be large drop in the price of jet fuel. As an example, US Airways Group Inc (NYSE:LCC) spent $1.13 billion on aircraft fuel in Q1. That amounts to 33% of the revenue spent on what most people consider a commodity.

Page 1 of 2
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

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!