Shares of Southwest Airlines Co. (NYSE:LUV), which have soared dramatically this year, may have more upside. Not having had the impact of higher air travel in its latest quarter, it too ought to see its profitability accelerate.
The two (JetBlue Airways Corporation (NASDAQ:JBLU) and Southwest Airlines Co. (NYSE:LUV)) are pursuing somewhat different strategies at this time. JetBlue Airways Corporation (NASDAQ:JBLU) is still one of the most aggressively expanding airlines, with Boston and the Caribbean as its two focal points of late. Southwest Airlines Co. (NYSE:LUV) is counting on the integration of its AirTran acquisition for upside. Each may be on track for more earnings stability and growth, given a conducive environment.
Fuller planes
Measures by consolidating air carriers, most notably United Continental Holdings Inc (NYSE:UAL), to keep supply under previous levels will likely lift airline profits. That carrier, in the process of implementing the integration of Continental, is apt to realize top-line and cost synergies, not to mention the means to adjust fares upward. Revenue yields are a byproduct of increased load factors that have a substantial effect on income. To what extent this occurs may reflect lesser competition, as well.
This brings up another sizable airline, set to soon merge with American Airlines, namely US Airways Group Inc (NYSE:LCC). While wrestling for market share among the major U.S. airlines, US Airways Group Inc (NYSE:LCC) might well also build upon its presence in the U.S. market, be it transcontinental or along the East Coast.
Cost environment
Margins are on track to be at their widest since 2010 this year, based on a drop in oil prices, in addition to the improved structure. The paring down of fleet sizes, or expansion plans for that matter, has allowed airlines to cut out unprofitable routes. Measures such as return on assets and returns on capital are apt to gain steam.
Summing it up
The IATA hiked its North American airline 2013 profit forecast by more than 20%. Corporate and leisure spending on flying seems to be growing. Plus, restructurings are stabilizing the cost bases of major carriers. It has been the goal of airlines to achieve more consistently positive financial results and external factors that have emerged of late can only be favorable in terms of that plan.
Accordingly, those that have shied away from air transport stocks in the past due to economic and fuel factors may want to reconsider. Competitive pressures have given way to, at least for now, an era of efficiency and growth, so long as the environment cooperates.
Damon Churchwell has no position in any stocks mentioned. The Motley Fool recommends Southwest Airlines. Damon is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article How Summer Airline Earnings May Shape Up originally appeared on Fool.com is written by Damon Churchwell.
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