An Easy Way to Invest in the Airline Industry

Robinson is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The airline industry has rebounded from lows observed in 2007 and 2008. Due to improving economic conditions across the map, customers are more prompt to travel nowadays. The consumer sentiment index is at multi-year levels. Therefore, investors should expose their portfolios to the airline industry to profit from this recovery.

Invest in the airline industry!

I have observed a general trend from airlines to expand into emerging markets, mainly Latin America. Delta Air Lines (NYSE: DAL) entered a code-share agreement with GOL Linhas Aereas, giving the Atlanta-based airline exposure to the Brazilian market.

The company’s expansion strategy is appealing for investors. Not only has Delta announced the code-share expansion, but it also opened the first Latin American technical operations line maintenance in Sao Paulo.

Further, Delta has been granted temporary permission by the U.S. Department of Transportation to operate the route Atlanta – Sao Paulo. The Brazilian city is the most important economic center in South America.

These are strong reasons for investors to consider investing in Delta Air Lines to gain exposure to the industry.

On top of that, investors should see capital growth because the carrier declared a quarterly $0.06 per share dividend back in May. Further, the board authorized a $500 million share-repurchase program to be completed no later than June 30, 2016. The airline is in the best position to start these programs because it reported $357 in free cash flow in its most recent earnings report.

The stock trades with a price-to-earnings ratio of 19.4, compared to the industry’s average of 33.6

Another airline worth considering

US Airways (NYSE: LCC) is also expanding into Latin America. The new route between Charlotte, N.C., the carrier’s largest hub, and Sao Paulo started on June 8. Customers from 85 cities in the United States will have a convenient one-stop access to Sao Paulo. Investors should delve into the carrier’s third-quarter 2013 earnings report to determine if the load factors for this route are high in comparison with the overall load factor. Although the date for the third-quarter 2013 earnings report is not set, investors may expect it to be around the fourth week of October.

Also, the merger with American Airlines has been approved by shareholders, and the board of directors for the new American Airlines has been elected. The merger positions US Airways as the carrier with the largest international exposure in the world. Nothing to sneeze at.

According to its latest earnings report, US Airways’ revenue rose by 7% to $3.4 billion, and its net income jumped from $48 million to $69 million. Its balance sheet carries below-average debt, with a debt-to-equity ratio of 1.7 compared to the industry’s average of 2.0. The stock trades with a P/E of 5.9, which may be regarded as a value play.

Bring the investment spirit on!

Spirit Airlines (NASDAQ: SAVE) is undergoing rapid expansion. The company has ordered 20 new Airbus A321 aircraft on top of the existing 96 aircraft that are expected to be delivered between 2015 and 2017. Further, the airline has converted 10 of its existing A320 aircraft orders to A321. The order is expected to be delivered in 2017 and 2018. The carrier is remodeling its fleet, which should improve its operating margins.

In addition, the carrier hosted two open houses for new flight attendants in Chicago. The hiring of employees is a strong sign of company growth.

Last but not least, Spirit reported astonishing traffic in June. Its revenue passenger miles (RPM) rose by 25% to 1.0 billion. To meet the passenger demand, the carrier augmented its available seat miles by 22% to 1.2 billion. Its load factor increased by 2.2% to 88.3%. In brief, the carrier is having strong passenger traffic, and it is adding more aircraft to capture as much revenue as possible.

The stock trades with a P/E ratio of 21.7, well below the industry’s average of 33.6

The (Robin) Foolish bottom line

The airline industry is rebounding, and you should take advantage of it today. The three carriers herein described offer an appealing investment prospectus, which surely will bring capital appreciation to you growth-oriented portfolio. They are expanding rapidly by opening new routes to South America and by adding new aircraft to the fleets.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Robinson Roacho has no position in any stocks mentioned. The Motley Fool owns shares of SPIRIT AIRLINES INC. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure