Most of us have heard of the incidents that have occurred on cruise lines recently. A May Harris Interactive poll of over 2,000 U.S. adults found consumer perceptions of cruise lines have deteriorated since the beginning of the year, especially for consumers who have not cruised in the past. Could ongoing issues in the cruise industry be turning travelers on to other forms of travel that are perceived to be safer?
The Harris poll found that Americans are showing a greater inclination towards air travel over cruising. Six in ten Americans, or 62%, find air travel more reliable than taking a cruise and 56% agree that air travel is a safer mode of travel than cruising. One-third of Americans find cruises to be “worry-free,” though this perception was affected by past cruising experience. Travelers who have cruised in the past, about 51%, are more likely to view cruises as “worry-free” than the 22% who have not taken a cruise.
With these results, there’s a possibility that the ongoing issues in the cruise line industry can create opportunities for airlines such as US Airways Group Inc (NYSE:LCC), Delta Air Lines, Inc. (NYSE:DAL), and JetBlue Airways Corporation (NASDAQ:JBLU) to attract more passengers.
US Airways has record first quarter
US Airways Group Inc (NYSE:LCC) had record profits in the first quarter of 2013 of $55 million, or $0.31 per diluted share. This compares to a $22 million net loss, or -$0.13 per share, in the first quarter 2012. The company’s record revenues were driven by strong demand and high passenger load factors, which are measurements of an airline’s ability to use the available capacity on its planes. More recently, the company had a record load factor in May of 85.8%. May’s mainline revenue passenger miles increased 5.9%, while mainline capacity increased 3.9% versus the same period last year.
The company’s merger with American Airlines is expected to close in the third quarter of 2013. According to a company press release, the combined entity is expected to generate $1 billion in “annual synergies” by 2015 and American is expected to emerge from bankruptcy once the merger is finalized.
There are arguments both in favor and against this merger. Those in favor believe the combined entity will gain cost efficiencies and a broader network of travel routes, while customers benefit from more choices and better service. Critics argue that greater consolidation in the industry reduces competition, which leads to higher prices and a reduced number of choices for consumers.
US Airways Group Inc (NYSE:LCC) currently trades at 5.8 times its 2014 earnings and is projected to grow 1.4% next year; earnings-per-share for 2014 is estimated to increase by $0.04 to $2.97. However, analysts’ estimate growth over the next five years to be around 60%.
Is Delta ready for takeoff?
Delta Air Lines, Inc. (NYSE:DAL) had higher passenger revenue in the Mar. 2013 quarter due to yield improvement; net income for the quarter was $7 million, or $0.01 per diluted share. Total passenger revenue rose 1% to $7.3 billion and was dragged down by a 7% decrease in revenue from regional carriers in the amount of $107 million. Fuel expenses, Delta Air Lines, Inc. (NYSE:DAL)’s single largest expense, rose 2%.