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SkyWest, Inc. (SKYW), Delta Air Lines, Inc. (DAL): Can These Airline Stocks Lift Your Portfolio?

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In June, the International Air Transport Association (IATA) forecast a 67% increase in profits for the global airline industry in 2013 to $12.7 billion. Passenger traffic will be up more than 5%, the IATA said, and airline occupancy will reach record levels of 80.3%, up more than 1% from last year.

Airlines coped with the rough times of the last few years by aggressively cutting costs and restructuring — either through mergers or, unfortunately in some cases, bankruptcy. But it looks like excellent flying weather this year, with the IATA predicting North American air carriers earning a profit margin of 4.2%.

SkyWest, Inc. (NASDAQ:SKYW)

Let’s take a look at three different airlines and see if these improving industry conditions are benefiting all of them.

The plucky regional carrier

Regional carriers like SkyWest, Inc. (NASDAQ:SKYW) may not be as flashy as the large airlines, but they get the job done very efficiently — and as we will see in the case of this company, profitably.

SkyWest, Inc. (NASDAQ:SKYW) serves cities in the U.S., Canada, the Caribbean and Mexico. The airline makes around 4,100 departures each day with 760 regional aircraft — Canadair regional jets and turboprops. They operate through SkyWest Airlines based in St. George, Utah and ExpressJet Airlines in Atlanta.

SkyWest, Inc. (NASDAQ:SKYW) Airlines has contractual agreements to operate flights for Alaska Airlines, and provides flights under the brand names United Express, Delta Connection, American Eagle and US Airways Express under agreements with United, Delta Air Lines, Inc. (NYSE:DAL), American Airlines and US Airways. ExpressJet operates has flights under the brand names United Express, Delta Air Lines, Inc. (NYSE:DAL) Connection and American Eagle under contractual agreements with United, Delta Air Lines, Inc. (NYSE:DAL) and American Airlines.

SkyWest, Inc. (NASDAQ:SKYW) flights are of the short-hop variety. The average passenger trip length is 524 miles.

In its second-quarter results, SkyWest, Inc. (NASDAQ:SKYW) reported operating income of $50.6, million compared to $46.8 million the same period last year. The company’s fleet has grown by 35 aircraft in the last year. As a result of lower interest expenses, pretax income was up even more percentage-wise–nearly 18%, to $33.7 million.

The company served 5.2% more passengers during the quarter than in 2012’s second quarter, but revenue per available seat mile declined. SkyWest, Inc. (NASDAQ:SKYW)’s balance sheet was solid at quarter’s end. The company had $665.6 million in cash and marketable securities on hand.

The new kid in the skies alters its strategic flight plan

JetBlue Airways Corporation (NASDAQ:JBLU), which calls itself “New York’s Hometown Airline,” opened for business only 13 years ago and now serves 79 cities with 850 flights departing each day.

Their original niche was as a low-fare carrier with superior service. For example, it offers seats — leather seats — with more legroom than other carriers’ coach-class service, and provides DirecTV on seat-back screens.

Recently, JetBlue Airways Corporation (NASDAQ:JBLU) announced innovations designed to entice more upscale leisure travelers to fly with the company. In 2014, it will begin offering seats that can be folded down into lie-flat beds on certain transcontinental routes and be the first airline to offer private little “suites” with doors. The company saw the high profit margin on premium cross-country seats from other airlines and wants to capture some of this rich business for itself. But with a JetBlue Airways Corporation (NASDAQ:JBLU) twist:  it intends to charge less for these premium seats than competitors do.

The company’s second-quarter results revealed some financial turbulence. Investors might want to keep their seat belts on–operating income was $102 million, down substantially from the $130 million the company earned in the comparable quarter last year. In operating-margin terms, the decline was even more stark: 7.6% this year compared to over 10% last year.

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