Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Republic Airways Holdings Inc. (RJET), SkyWest, Inc. (SKYW): A New Business Strategy for Airlines to Increase Profits

Airline stocks have outperformed the market after a long curse. It was not uncommon to think about airline companies as the worst possible investment ever. However, most of them have been rallying this year, easily outperforming the S&P 500. Republic Airways Holdings Inc. (NASDAQ:RJET) and SkyWest, Inc. (NASDAQ:SKYW) are two regional airlines of roughly the same valuation by market capitalization.

Republic Airways Holdings Inc. (NASDAQ:RJET)However, Republic Airways Holdings Inc. (NASDAQ:RJET) has rallied 90% year-to-date, while SkyWest, Inc. (NASDAQ:SKYW) has rallied 17%. We should discuss which airline may be positioned for bigger gains in the near future taking into account several metrics, most importantly aircraft- leasing contracts.

Regional airlines act as little giants

Regional airlines such as Southwest Airlines Co. (NYSE:LUV) have outperformed major airlines such as Delta Air Lines, Inc. (NYSE:DAL). However, Republic Airways Holdings Inc. (NASDAQ:RJET) has almost doubled its price per share in 2013. What’s more is that the company is trading with a P/E of 9.1, and a forward P/E of approximately 6.0, which could be considered cheap on valuation terms. Southwest Airlines Co. (NYSE:LUV) is trading with a P/E of 28.2, and Delta Air Lines, Inc. (NYSE:DAL) is trading with a P/E of 17.6.

I believe the Republic Airways Holdings Inc. (NASDAQ:RJET) should continue to bring capital appreciation to its shareholders. The company had a strong first quarter in 2013 according to its most recent earnings report. Although its total revenue declined 9% to $635 million in the period, a 31% decrease in fuel-related expenses offset the losses in revenue. Its net income rose 35% to $30 million. It was the first time in four years that the company had a profitable first quarter.

Further, it is important to mention that the company was able to decrease its debt load by $80 million on a year-over-year basis. The company finished the first quarter with approximately $1.8 billion in debt, or a debt/equity ratio of 3.4.

Looking ahead, the carrier is reducing costs of operation by selling aircraft. The company sold five airplanes and returned two more to lessors. Personally, I like Republic Airways Holdings Inc. (NASDAQ:RJET)’s business model because it is returning unnecessary aircraft, and this strategy saves enormous amounts of fuel. Its load factor will increase, and the revenue per flight will jump significantly.

In addition, Republic Airways Holdings Inc. (NASDAQ:RJET) is leasing aircraft as opposed to financing new aircraft. Financing aircraft is dangerous because usually the airlines get unfavorable interest rates due to the amount of debt they carry. However, Republic Airways should not have this issue, and it makes it more competitive against other companies. Hence, this company should offer substantial value in the future.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.