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Delta Air Lines, Inc. (DAL): How to Invest in Air Travel Without Buying Airlines

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In previous articles I have noted the changes happening in the airline industry that should help boost airline earnings and stability over the next few years. Many investors are still cautious of the airline sector, but do see an increase in air travel occurring over the next few years. These investors are looking for investments that benefit from an increase in air travel, but do not carry all the risks present at airlines. For this situation, I believe that rental car companies are well positioned to gain as air travel returns to health alongside an improving economy.

Delta Air Lines, Inc. (NYSE:DAL)

Rental car kings

Like the airline industry, the rental car industry has undergone numerous mergers that have left far fewer competitors than ever before. While most travelers will see an abundance of rental car names as they leave the airport, in reality many of these names are owned by the same parent company. The table below demonstrates the extent to which the number of rental car companies is not what it seems.

Enterprise Holdings Hertz Global Holdings, Inc. (NYSE:HTZ) Avis Budget Group Inc. (NASDAQ:CAR)
Enterprise Rent A Car
Alamo Rent A Car
National Car Rental
Hertz Corporation
Thrifty Car Rental
Dollar Rent A CAr
Avis Rent A Car
Budget Rent A Car

Unlike airlines, which have retired brand names after mergers, rental car companies have chosen to keep acquired brand names alive. This is largely due to the brands rental companies like to create. Most find it beneficial to have separate premium and leisure brands to cater to different segments of the travel market. Acquired rental car companies also come with their own following of loyal customers, many of which are used to the existing brand, and the acquiring company finds it more profitable to let these customers rent from their own brand rather than try to incorporate them into the parent company’s brand.

Earnings ramp-up

Rental car companies are major beneficiaries of air travel since it brings large numbers of generally higher spending, car-less customers to their locations. The rental car stands are almost universal at or around airports for this exact reason. With an improving economy, air travel is expected to rise boosting airline profits while at the same time increasing the rate at which cars can be rented.

I have chosen Delta Air Lines, Inc. (NYSE:DAL) as a fitting comparison for Hertz Global Holdings, Inc. (NYSE:HTZ) and Avis Budget Group Inc. (NASDAQ:CAR) since Delta Air Lines, Inc. (NYSE:DAL) is, for the most part, finished with its merger and is not expecting to begin a new large scale merger any time in the foreseeable future. Additionally, the worldwide presence of Delta Air Lines, Inc. (NYSE:DAL) is more closely matched to the rental car giants than any regional airline could be.

Company EPS 2011 EPS 2012 est. EPS 2013 est. EPS 2014
Delta Air Lines $1.01 $1.19 $2.57 $2.72
Hertz Global Holdings $0.40 $0.54 $1.91 $2.64
Avis Budget Group ($0.28) $2.42 $1.83 $3.00


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