The airline industry is known for being among the most competitive and challenging businesses out there. Some well-known 20th century airlines no longer operate today, such as ATA Airlines. Others operate under bankruptcy protection, like Delta Air Lines, Inc. (NYSE:DAL), and regional airliner Southwest Airlines Co. (NYSE:LUV) has stayed competitive in the business by keeping operations focused on a specific niche.
It’s no secret that we are fans of mimicking the smart money. We’ve recently teamed up with MarketWatch to create the Billionaire Hedge Fund Index to measure how well hedge funds can pick stocks. The Index tracks more than 40 billionaire fund managers, and after a full year of its existence, the results speak for themselves. In 2012, this index returned 24.3% vs. 16.0% for the S&P 500 ETF. That's an outperformance of 8.3 percentage points (learn more about how to use this market-dominating strategy).
Consequently, we're going to look at a few different airliners what some hedge funds are doing with their holdings.
Let's check out Delta Airlines first. Delta operates globally using the hub-and-spoke system, operating in New York, Amsterdam, Tokyo, and many other cities. The stock traded at $14.83 at the beginning of 2008. It currently trades around $13.80 and is up from around $12.00 at the beginning of 2013. Revenue has grown at a compounded rate of over 15.5% since 2008. Net income has been positive since 2010 and grew over 40% in 2011. Popular fund managers such as George Soros (see Soros Fund Management's top holdings) and David Tepper keep a good chunk of their 13F portfolios in Delta.
Smaller airliners, such as Southwest Airlines, still pack a punch. Known for their "sex sells seats" motto in the 1970s and their 40 straight years of profitability shortly after starting, Southwest has been one of the most interesting players in the business. Before the recession, Southwest traded between $11-$18 per share, then traded below $5 in 2009. Currently their stock trades over $11 per share. The stock has grown a little under 10% per year from 2008 lows around $7. Though still underperforming Delta over the same period, the company also pays a 0.40% annual dividend yield.
Sales shrank slightly by 6% in 2009, but grew at a rate of over 18% per year from 2010-2012. Southwest Airlines was Jim Simons' 253rd biggest investment in 3Q 2012, placing it in the top 10% of his holdings. Simons has operated his hedge fund, Renaissance Technologies, so successfully that he is currently ranked the 31st wealthiest man in the United States (see Simons’ newest stock picks).
Who's the best of the rest?