An Airline Stock? Surely you can't be Serious!
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I am serious, and don't call me Shirley! There is an old adage that goes something like this -- How do you make $1 million on an airline? Start with $1 billion and go from there. With the recent bankruptcy filing of American Airlines (NASDAQ: AAMRQ.PK) investors might be leery of airline stocks, and not without reason. Can you face some unpleasant facts? The slow economy and rising fuel prices over the past several years have made it even more difficult to run a profitable airline.
But people still need to travel and air travel is the best option for many. And there are some airlines that can still manage to make a profit despite the increasing obstacles they face. Allegiant Travel Co. (NASDAQ: ALGT) is based in Las Vegas and focuses on the leisure travel segment. On Feb. 1 the company reported fourth quarter and full year 2011 financial results. The fourth quarter of 2011 was the company's 36th consecutive profitable quarter. Revenues were up 20% from the previous year and the fifth year in a row with double-digit operating margins. With 53 aricraft in their fleet the airline plans to serve 76 cities in 2012. Passenger revenue per available seat mile (PRASM), perhaps the most important bottom-line measure of an airline's health, increased 11.7% over the year-ago period and 19.2% for all of 2011. With $320M in cash and only $146M in debt at year end, this airline looks like it is cleared for takeoff in 2012 and beyond.
When you're down and feeling blue, take a trip on JetBlue (NASDAQ: JBLU), like many other travelers do! JetBlue Airways Corp. was founded in New York in 1998 to provide an alternative regional carrier to compete against the larger airlines. Despite the uncertain economy, passenger miles in the fourth quarter of 2011 increased 11% year over year. PRASM increased by 11.6% for the 2011 fiscal year. Net income for the quarter was $23M (or 8 cents per share), up from $8M (3 cents per share) in Q4 of 2010. For fiscal 2011, total operating revenue increased 19.2% year over year to $4.5 billion. Looking ahead, JetBlue said its first-quarter capacity will increase between 9.5% and 11.5%, while full-year capacity will gain between 5.5% and 7.5%, even though most competitors are either reducing capacity or planning very limited growth. Slight increases in maintenance costs could offset the increased capacity, however JetBlue has plenty of cash on hand ($1.2B at fiscal 2011 year end) and a fuel hedging strategy to minimize the impacts to the bottom line.
The largest US low-cost carrier, Southwest Airlines (NYSE: LUV), also had a profitable year in 2011, their 39th profitable year. Southwest is a regional carrier founded in 1967 with headquarters in Dallas, Texas. Although the fourth quarter beat earnings estimates (adjusted earnings of 9 cents per share versus consensus estimates of 8 cents), the Q4 earnings were down 40% from a year earlier. In fiscal 2011, airline traffic increased 25% year over year while capacity grew 22.5%. Total operating expenses for fiscal 2011, including special items, increased 34.6% year over year on a 55.9% year-over-year surge in fuel. Excluding the special item, operating expenses increased 35.5%.
The acquisition of AirTran in 2011 made it somewhat difficult to compare 2011 earnings figures to the previous year. However, the company expects total acquisition and integration costs of AirTran to approach $500M while adding annual pre-tax synergies of $400 million by 2013. For 2011, the company realized $80 million in net pre-tax synergies that was modestly accretive to supported 2011 financial results. In addition, the company made debt repayment of $638 million during 2011. They repurchased $225M in shares in 2011 and on Jan. 26, they declared their 142nd consecutive quarterly dividend.
I picked a lousy week to quit sniffing glue, but you can make some good picks by taking a closer look at some of these airline stocks.
Motley Fool newsletter services recommend Southwest Airlines. The Motley Fool owns shares of Allegiant Travel Company. EnigmaDude has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
