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Delta Air Lines, Inc. (DAL), United Continental Holdings Inc (UAL): Should Investors Buy In?

Expenditure affecting profit:

United Continental Holdings Inc (NYSE:UAL) recently posted a special charges-adjusted loss of $325 million in the first quarter, which is its worst loss since the first quarter of 2009. Although it’s operating revenue increased by 1.4%, it also led to an increase in operating expenses by 1.3%. The major reasons behind increased operating expenses were increased spending on maintenance material and personnel costs, which became a drag on the profits.

On the other side, the company’s strategy of fuel cost hedging affected its performance, due to declining fuel prices. It is estimated that its loss from derivatives related to fuel prices could be $110 million.

Talking about the positives, United Continental Holdings Inc (NYSE:UAL) should benefit from a favorable macro-economic environment and lower fuel prices. It is in the process of reducing operating costs by retiring older and less efficient aircraft. In the first quarter it received six Boeing 737-900 ERs and retired two Boeing 757-200s and three Boeing 737-599s. It will also receive around six new aircraft in the second quarter and will retire around twelve older ones. This addition will reduce its operating expenditure and will also enhance customer experience.

Looking at all these factors, I recommend holding this stock for now and waiting for more news before taking any new position.

Bottom-line:

Delta Air Lines, Inc. (NYSE:DAL) looks to be on track with its cost reduction initiative, which will generate around $600 million in 2013 and low fuel prices will further help it to improve the profitability this year.

For US Airways Group, Inc. (NYSE:LCC) the biggest growth potential comes from its merger with the AMR group, which will make it the world’s largest airline and will provide significant synergy.

But things are not as good at United Continental Holdings Inc (NYSE:UAL), as it continues to face issues of higher operating expenses.

The article Does a Positive Industry Outlook Translate Into Investing Opportunity in These 3 Companies? originally appeared on Fool.com and is written by Shweta Dubey.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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