Entering the summer, airplane travel will soon increase, as people fly across the country hoping to get away for vacation, or meet relatives, or go to business meetings if they are stuck at their jobs. This current quarter is when travel is at its peak, and also when oil prices tend to rise with the increased demand from the oil-guzzling jets. This year though there is another factor: the tax man.
Last month, President Obama announced a proposal for a $14 tax on all airline passengers, in an effort to boost revenue for airport maintenance. While this may not seem like much for passengers looking to book a flight, since $14 barely shows up in the costs of a nearly $400 plane ticket anyway, some companies are worried it may be more prominent as they try to lure customers with cheap flying options.
It provides a headache for an industry that has faced unprecedented challenges this past decade, from terrorism threats, to TSA searches, to increasingly volatile oil prices, its never been a good market for investors to get into. However, there are some investors that like airline stocks, and for some of them, despite the volatility, they can be an affordable way to boost one’s portfolio. The question is, which ones?
For Southwest Airlines Co. (NYSE:LUV), the $14 tax is the biggest concern so far. Since Southwest Airlines Co. (NYSE:LUV)operates on a point-to-point basis rather than a hub-and-spoke system, it can turn flights around very quickly once they land. This helps the company offer cheap flights to passengers that just want to get from point A to point B without many bells and whistles attached. This does mean that an extra $14 will unnerve some of Southwest Airlines Co. (NYSE:LUV)’s clients, who generally tend to be middle-class people that just want a cheap way to cross the country. For only $280, a customer can get a one-way ticket from New York to San Francisco, and a round-trip can go for as little as $449, so it would be noticeable, especially if on a budget.
Delta Air Lines, Inc. (NYSE:DAL) has probably been the busiest airline these past few months with expansions into Latin America. Just last month, Delta Air Lines, Inc. (NYSE:DAL) expanded operations into Belize, Guatemala, and Costa Rica, as it tries to grow the increasing amount of traffic to and from Latin America. This is also taking advantage of expanded terminals at New York’s JFK airport and Los Angeles, which were worth over $1.6 billion combined. These would provide better runways, as well as a better airport experience for customers, which will help Delta’s brand.