Since the decline of oil prices began in 2014, there have been frequent reports in the media of how it has been the best time in recent memory for people to take extended trips.
Initially, such talk applied primarily to trips by car; the longer oil prices have remained depressed, though, the more other modes of travel, particularly air travel, have been introduced into the conversation.
Many air travelers didn’t see much of a difference in the price of fares because airlines increased some fees and may have taken other actions intended to keep their income up. In July 2015 the Department of Justice launched an investigation into whether U.S. airlines conspired to keep airfares artificially high in part by limiting seating capacity.
The four largest U.S. air carriers – American Airlines (AAL, Financial), United (UAL, Financial), Delta Air Lines (DAL, Financial) and Southwest Airlines (LUV, Financial) – confirmed that they were part of the DoJ investigation and were cooperating with it. Those airlines control more than four-fifths of U.S. commercial air traffic.
Airline stocks dropped dramatically in the wake of news of the probe, and airlines cut their fares. Before the month was over, the Labor Department reported that airfares had recorded their largest monthly decline in 20 years.
Fares do seem to be continuing to fall. Earlier this month, the major U.S. air carriers reported that they were lowering one-way fares on domestic flights between $3 and $4. The average domestic round trip is $210, according to Hopper.com – a three-year low and 14% lower than January 2015.
While that is good news for consumers, it is a drop in the bucket compared to airlines' profits. Delta recently reported a $980 million profit for the fourth quarter.
Prior to the drop in oil prices, airlines were struggling. How are the major U.S. carriers doing now? It was a mixed bag when oil prices began to fall, but most of the airlines have posted gains in the last year.
American Airlines
American, a Fort Worth, Texas-based airline, seems to have been hit the hardest. American witnessed a decline in revenue per share of 9% in the last decade. That drop was more pronounced – 12% – in the last five years, and it has been nearly 40% in the last 12 months.
George Soros (Trades, Portfolio), David Dreman (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio) added to their stakes in American in the third quarter. PRIMECAP is American’s leading shareholder among the gurus with 16,630,495 shares in its portfolio. The stake is 2.64% of American’s outstanding shares and 0.72% of PRIMECAP’s total assets.
American has a P/E of 5.7, a forward P/E of 6.2, a P/B of 6.6 and a P/S of 0.7. GuruFocus gives American a Financial Strength rating of 7/10 and a Profitability and Growth rating of 7/10.
American sold for $39.79 per share Thursday.
United
United, a Chicago-based airline, didn’t experience as dramatic a drop in revenue per share as American. Its 10-year decline was 5.2%, and its five-year decline was 0.2%, but it recorded an increase of 0.5% in the last 12 months.
Three gurus – Dreman, Alan Fournier (Trades, Portfolio) and John Burbank (Trades, Portfolio) – bought stakes in United in the third quarter. Four others – Sarah Ketterer (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) – added to existing stakes. PRIMECAP, which reduced its stake by more than 4% in the third quarter, is the largest shareholder among the gurus with 19,488,650 shares in its portfolio. The stake is 5.23% of United’s outstanding shares and 1.15% of PRIMECAP’s total assets.
United has a P/E of 2.6, a forward P/E of 5.2, a P/B of 2.0 and a P/S of 0.5. GuruFocus gives United a Financial Strength rating of 7/10 and a Profitability and Growth rating of 5/10.
United sold for $45.33 per share Thursday, more than 15 times its selling price on July 14, 2009.
Delta Air Lines
Delta, an Atlanta-based air carrier, had a slightly higher decline in revenue per share than American in the last 10 years – 9.5% – but its revenue was up 6.5% in the last five years and up 7.1% in the last 12 months.
Three gurus – Fournier, First Pacific Advisors (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) – bought stakes in Delta in the third quarter. Eleven gurus – Soros, Ketterer, Greenblatt, Dreman, David Tepper (Trades, Portfolio), John Burbank (Trades, Portfolio), Leon Cooperman (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Ronald Muhlenkamp (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) – added to existing stakes in the third quarter.
PRIMECAP is Delta’s leading shareholder among the gurus with 18,308,225 shares in its portfolio. The stake is 2.33% of Delta’s outstanding shares and 0.91% of PRIMECAP’s total assets.
Delta has a P/E of 13.3, a forward P/E of 6.6, a P/B of 3.6 and a P/S of 0.9. GuruFocus gives Delta a Financial Strength rating of 4/10 and a Profitability and Growth rating of 6/10.
Delta sold for $46.52 per share Thursday, more than 11 times its selling price on March 2, 2009.
Southwest
Southwest, a Dallas-based air carrier, is the only one of the four major airlines to report increased revenue for all three periods – 12.6% in the last 10 years, 14.1% in the last five years and 9.6% in the last 12 months.
Three gurus – Tepper, Dalio and Pioneer Investments (Trades, Portfolio) – bought stakes in Southwest in the third quarter. Four gurus – Soros, Dreman, Steven Cohen (Trades, Portfolio) and RS Investment Management (Trades, Portfolio) – added to existing stakes in their portfolios.
PRIMECAP, which reduced its stake by more than 4% in the third quarter, is Southwest’s leading shareholder among the gurus with 74,401,158 shares in its portfolio. The stake is 11.44% of Southwest’s outstanding shares and 3.14% of PRIMECAP’s total assets.
Southwest has a P/E of 14.5, a forward P/E of 9.4, a P/B of 3.7 and a P/S of 1.4. GuruFocus gives Southwest a Financial Strength rating of 8/10 and a Profitability and Growth rating of 8/10.
Southwest sold for $39.5 per share Thursday, more than seven times what the stock sold for on March 16, 2009.
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