Transportation

Will Airlines Perform Better in Warmer Weather?

airplane
Source: Thinkstock
Airline stocks are having another very good year so far in 2014, after a better-than-solid 2013. Since the beginning of the year, airline stocks are up about 30%, and there does not appear to be an end in sight. Even the rotten winter weather failed to chill results for most of the airlines

Recall that during the first quarter thousands of flights were cancelled due to bad weather. The Bureau of Transportation Statistics reported that 6.05% of all domestic flights were cancelled in January and February, the worst cancellation rate in 20 years.

Fees for checked baggage and other services make a significant difference for the airlines though. In 2013, the most recent figures available, U.S. airlines posted $3.35 billion in baggage fee revenues and one estimate for total fee revenues in 2013 ran to $14.3 billion for all major U.S. airlines. If you hate paying fees, get over it, because they are here to stay.

Here is a look at five major U.S. carriers and our choice for the best of the bunch.

United Continental Holdings Inc. (NYSE: UAL) closed at $41.58 Monday, in a 52-week range of $27.32 to $49.20. The consensus price target for the stock is $50.40, implying a potential gain of 21%. Fiscal 2014 earnings per share (EPS) are forecast at $3.88, a dime below the forecast in early January, and the forward price-to-earnings (P/E) ratio is about 7.5, down from around 10. United’s stock is up 22% in the past 12 months, about half the size of its 12-month gain back in January. The company reported a $609 million loss in the first quarter, $200 million of which was attributed to weather cancellations.

American Airlines Group Inc. (NYSE: AAL) has traded in a range of $15.28 to $39.88 in the past year and closed Monday at $39.39. The consensus price target for the stock is about $46.30, giving a potential upside of about 17.5%. The EPS estimate for 2014 is $5.15, up from $3.45 in January, and the stock’s forward P/E ratio slipped about a point to 6.5.

Southwest Airlines Co. (NYSE: LUV) posted a new 52-week high Monday and closed at $24.94 in a new range of $12.58 to $24.97. Shares have gained 75% in the past 12 months, the same share price hike the company showed in January. A consensus price target of around $26.40 yields a potential upside of 5.9%. The 2014 EPS estimate is $1.49, and the forward P/E ratio is 14.4. Southwest said it cancelled 7,500 flights last quarter.

READ MORE: Southwest Tops Best Frequent Flyer Programs

Delta Air Lines Inc. (NYSE: DAL) came within half a buck of its 52-week high on Monday, closing at $38.65, in a 52-week range of $16.94 to $38.82, and the stock price is up more than 110% in the past 12 months. The consensus price target on the stock is around $45.50, for an upside potential of 17.7%. EPS in 2014 is estimated at $2.97, and the stock’s forward multiple is 11.18. Delta cancelled more than 17,000 flights in the first quarter.

JetBlue Airways Corp. (NASDAQ: JBLU) closed at $8.76 on Monday, in a 52-week range of $5.95 to $9.45. The consensus price target on the stock is $10.00, leaving headroom for a gain of 14.3%. Shares have increased about 28% in the past year. EPS is expected to be $0.68 this year, and the company’s forward multiple is about 10.4. JetBlue cancelled some 4,100 flights in the first quarter.

United, Delta and American sport the best potential gains, but United’s profit problems in the prior quarter were related to poor revenues, not particularly high costs. United’s CEO said they were doing what was needed to fix the issue, and that is easier said than done. Between Delta and American, we would look at Delta as the better choice. Even though Delta dropped about $90 million in revenue to bad weather in the first quarter, it still posted profit growth year-over-year.

JetBlue, which trails only Southwest among U.S. frequent-flyer programs, is struggling with higher costs and was particularly hard hit by flight cancellations last quarter. The airline’s main problem, though, could be that it is stuck somewhere between the major carriers and the ultra-discount airlines like Spirit Airlines Inc. (NASDAQ: SAVE). Four senior execs were replaced in April, and the CEO’s job is currently on the line. Even though the implied gain here is reasonably high, unless you like to gamble it might be smart to wait on JetBlue.

READ MORE: America’s Best and Worst Airlines

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