Airlines have historically been terrible investments. However, things are starting to look better for the airline sector. Airlines are one of the best-performing sectors on Wall Street this year. Higher fares, less competition, and full planes are putting profits back into the airlines’ pockets. This has caught the attention of notable hedge fund managers George Soros and David Tepper.
Hedgies’ two favorite airlines
Both Soros and Tepper own shares of Delta Air Lines, Inc. (NYSE:DAL) and US Airways Group Inc (NYSE:LCC). Both own more than 9 million shares of US Airways Group Inc (NYSE:LCC). In regards to Delta Air Lines, Inc. (NYSE:DAL), Tepper has a slightly larger stake with almost 10.7 million shares, versus Soros and his 9.8-million-share stake.
Outlook for both airlines
Delta Air Lines, Inc. (NYSE:DAL) continues to prove why it’s one of the best-run airlines in the U.S. The airline just unveiled a new state of the art $1.4 billion terminal at New York’s JFK International Airport. JFK has more international arrivals than any airport in the U.S. Last year, 13.1 million passengers arrived internationally. Of those, 2.1 million landed on Delta Air Lines, Inc. (NYSE:DAL) airplanes, the most of any airline. Delta Air Lines, Inc. (NYSE:DAL)’s goal with the new terminal is to win more business from New York’s well-heeled clientele with last-minute flights and is offering a new terminal with more non-stop flights to do so.
This $1.4 billion investment continues Delta Air Lines, Inc. (NYSE:DAL)’s efforts to increase value for shareholders. Delta just outlined its plans for the next five years. The plan includes returning $1 billion to shareholders and reinvesting more than $2 billion annually to improve the company’s fleet, facilities, and technology. The company will also use free cash flow to reduce debt and pension obligations. With these plans, it’s easy to see why both Soros and Tepper have bought into Delta.
What I like most about US Airways Group Inc (NYSE:LCC) is the upcoming merger with American Airlines, which is expected to be completed in the third quarter of this year. This merger is a great combination because many of their routes are complementary and have very little overlap. The combined airline will likely reduce costs by $150 million annually and management expects an additional $900 million in ticket sales by luring corporate travelers from the other airlines. The new airline will have more than 900 planes, 3,200 daily flights, and about 95,000 employees. According to US Airways Group Inc (NYSE:LCC) CEO Doug Parker:
The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace. Our combined network will provide a significantly more attractive offering to customers, ensuring that we are always able to take them where they want to go.