Delta Air Lines, Inc. (DAL), United Continental Holdings Inc (UAL), Southwest Airlines Co. (LUV): Is It Time to Consider Investing in the Airlines?

On the other hand, airlines continue to demonstrate very low profit margins: In the first quarter of 2013, Delta Air Lines, Inc. (NYSE:DAL)’s operating profit margin fell to 2.6%; Southwest Airlines Co. (NYSE:LUV)’s profit margin reached 1.7%. In the same quarter in 2012 its profit margin was 0.6%. Conversely, United Continental Holdings Inc (NYSE:UAL) continued to lose money: In the first quarter of 2013, the company’s operating loss was $264 million compared with $271 million in Q1 2012. Because the airline industry is characterized with near perfect competition (and has been so for many years), it’s no surprise that these companies have very small profit margins.

Furthermore, these leading airlines’ unit revenue fell in April: Delta Air Lines, Inc. (NYSE:DAL)’s unit revenue fell by 2%; Southwest Airlines Co. (NYSE:LUV)‘s, by 4% to 5%; United Continental Holdings Inc (NYSE:UAL), by 1%. On the other hand, according to Delta officials, its unit revenue rose by as much as 1% during May.

Sequester aftermath

Many talked about the recent sequester in which the budget cuts that included a reduction in the number of traffic controllers, which resulted in longer travel delays. The Bureau of Transportation also reported a rise in delays. But even though this item was widely covered in the news, it had a small effect on airline companies. If the U.S policymakers decide to extend their budget cuts on traffic controllers in coming years, this might have a longer adverse effect on the airline industry.

The bottom line

The major airlines are moving in the right direction, but I can’t see how, in such a competitive industry, profit margins or revenue are likely to rise by a significant rate anytime soon. Therefore, even though these companies are doing better in improving their operations, I don’t think these actions will be enough to make these companies attractive investments.

The article Is It Time to Consider Investing in the Airlines? originally appeared on Fool.com and is written by Lior Cohen.

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