The airline industry, whose profits hinge greatly on fuel costs, benefited from the average daily spot price for Brent crude oil dropping to $108 per barrel in the second quarter of 2012, compared to $117 per barrel in the second quarter of 2011. The price dropped as uncertainty in Europe continued and the worldwide economic growth slowed.
JetBlue (JBLU), Tepper’s smallest airline holding, is down almost 3% year to date, after a 9.6% pullback in the third quarter. Tepper did not add to the position in the third quarter, but left it at 817,374 shares, which he acquired in the second quarter. The position is a 0.097% blip in his portfolio.
JetBlue announced second quarter results July 25, which included an 11% year-over-year increase in operating revenues to a record $1.3 billion, a 108% increase in net income to $52 million, and 2.7-point increase in operating margin to 10.2%. The gains were helped by the fruits of JetBlue’s growth strategy in Boston Caribbean & Latin America.
The airline’s average fare rose 1%, as the average fuel cost per gallon decreased 2.8% due to hedging. The company also suffered a $1 million loss on fuel hedges that settled in the second quarter.
On the balance sheet, it has $1.1 billion in cash and $3.7 billion in long-term liabilities and debt. Its P/E at 10.8 is close to a five-year high, and it has a P/B of 0.8 and P/S of 0.3.
Tepper raised his stake in his second-largest airline stock, Delta Airlines (DAL), by 852,718 shares, giving him 2,783,380 shares total for a 2.4% weighting in his portfolio. Delta’s rose 21% year to date, after a 16.4% drop in the third quarter.
In the second quarter, Delta lost $168 million, or $0.20 per share. Total operating revenue increased 6% year over year to X, primarily on higher passenger revenue, offset by higher fuel expense – its single largest expense – including market losses for fuel hedge contracts settling and other severance and retiree healthcare costs.
The company said in its 10-Q regarding fuel costs: “Because global demand for jet fuel and related products is increasing at the same time that jet fuel refining capacity is decreasing in the U.S. (particularly in the Northeast), the refinery mark-up or margin reflected in the prices we pay for jet fuel has increased. Our ability to acquire jet fuel from Monroe and the strategic agreements with BP and Phillips 66 are expected to reduce our fuel costs.”
Delta’s revenue per share declined at a rate of 15.5% annually per share for the past five years, and its operating margin shows a slight increasing trend over the same period. At $9.80 per share on Monday, Delta is trading near third quarter book value of $9.16 per share.
The company’s P/E at 4 is close to a 10-year low, and it has no P/B and a P/S of 0.2.
The approximate $5.4 billion in cash on its balance sheet is overshadowed by $31.1 billion in long-term liabilities and debt.
Tepper added 676,800 shares of US Airways Group, his largest airline holding, in the third quarter at an average price of $12 per share. Together with the shares he already he owned, his stake totaled 13,603,495 shares, a 3.5% weighting in his portfolio.
US Airways Group (LCC), his largest airline holding, rallied 154% year to date, with a 21.5% reduction in the third quarter.
The company’s second quarter results showed a 7.2% revenue increase year over year to $3.8 billion, and record second quarter net profit excluding net special charges of $321 million, a 203% increase from the previous year.
US Airways did not hedge its fuel portfolio, allowing it full exposure to the benefits of fuel price decreases in the quarter. Its cost per gallon decreased 3.5%.
The company’s fundamentals show a 12.2% five-year revenue decline rate, cash of $2.9 billion in cash and $5.1 billion in long-term liabilities and debt. Its fluctuating gross margin shows a slight decline over the past ten years, as its fluctuating operating margin is almost flat overall.
At 4.5, US Airway’s P/E ratio is close to a one-year low. Its P/S ratio, at 0.2, is close to a three-year high, and its P/B ratio is 2.7.
See David Tepper’s portfolio updated for the third quarter here. Also check out his Undervalued Stocks, Top Growth Companies and High Yield stocks.