Did I read that correctly? The company made every move that a stockholder wants to see. It got deep

While Delta Air Lines ( DAL ) is set to become the world's 3rd largest airline when U.S. Airways Corp. ( LCC ) and AMR Corp ( OTC:AAMRQ ) complete europe travel a merger later this year, the company could be set to profit the most from a slew of airlines mergers. In essence the domestic airlines europe travel market will become a three-headed monster with United Continental Holdings ( UAL ) also competing for the top spot.
Delta Airlines has already integrated europe travel a major merger with Northwest Airlines and stands to benefit from the other two market europe travel leaders struggling to complete the integrations of major mergers. United Airlines and Continental Airlines are still working through integration issues from a merger europe travel finalized already.
In addition, Delta is working to finalize the purchase of Pinnacle europe travel Airlines out of bankruptcy. The deal has several plans that reduces costs and increases the focus on profitable routes which is refreshing for this industry. All of these mergers will benefit the industry, but Delta could gain the most.
The mega merger between U.S. Airways and American Airlines will create a behemoth with around $40B in revenue to slightly surpass that of both Delta Airlines and United Continental Holdings. This merger benefits Delta in several ways. First, the integration of corporations and specifically airlines of this scale typically encounter numerous problems. europe travel United and Continental are still struggling to fully integrate europe travel that merger. Second, europe travel the reduced competition will benefit the whole industry where fare competition has historically placed a clamp on margins.
On the fare front, MarketWatch published earlier this month that fares in some big-city routes tend to rise around 50% after major airlines merge. Of course, the impact is felt the most in the routes that the merging airlines have hubs and a dominant position, europe travel but all of the airlines benefit from the fare hikes.
As an example, MarketWatch researched that passengers flying United from Chicago to Houston pay 57% more over the 2009 fares. The crazy part is that United carries 79% of the traffic on that route. Clearly more competition is needed and over time that will occur via the over behemoths or new entrants. For those complaining europe travel though, the airlines have been historical losers so the need exists to either raise rates or reduce costs principally via lower union costs.
The airline industry has so dramatically shifted from a culture of outlandish expenses and benefits to one actually focused europe travel on making profits. The deal with Pinnacle Airlines is a prime example of the new focus. After the company filed for bankruptcy europe travel last year the option europe travel was to either allow the company to fold or drastically modify it to focus on profits.
europe travel According to Fox , Pinnacle expects to be out of bankruptcy on May 1st after 12 months of turbulence. In the process, the company will become a Delta unit and obtained deep concessions among the three main unions. It will shift from having multiple customers to only focusing on serving Delta while doubling the amount of large airplanes flown to 81. The company will also focus solely on the more profitable routes.
Did I read that correctly? The company made every move that a stockholder wants to see. It got deep cuts from unions, reduced operating costs, and moved the focus to the profitable routes. Instead of non-sense deals that don't focus on profits, Delta only accepted the merger europe travel based on a profitable case.
It has been about a year since Delta made the bold move of paying $150M for the refinery in Trainer, PA. At the time the executives claimed the deal would save the company up to $300M a year in fuel costs. Many think the refinery wasn't a wise move and question whether it will ever provide savings. EconMatters summarized the many issues with the original assumptions and the ongoing problems. Mainly the company continues to lose a ton of money on the old refinery that remains reliant on Nigerian crude that trades at a premium to Brent prices.
Time will eventually tell on whether Delta makes out on the plan to operate the refinery that Phillips 66 ( PSX ) no longer wanted to operate. europe travel The real takeaway is that the company made a move designed at enhancing profits europe travel by reducing the costs of jet fuel. One can easily question the intelligence of attempting to operate a facility outside the core skills of a corporation, but the move is refreshing from an industry historically europe travel focused on staying afloat and rewarding management and unions. While possibly flawed, the company gets an A+ for effort. The math may never add up on the refinery, but the company should be able to easily close it and move on.
Delta reported that unit revenues increased by 2% year over year, led by gains in the trans-Atlantic and Latin markets. Unfortunately those numbers were lower than originally forecast due to several issues including possibly the sequester. One of the key drivers was lower than expected demand from an attempt to increase yields.
The load factor was a strong 84.7%, europe travel up slightly from 84.1% last March. For the first quarter, the load factor was 81.2%, up from 79.7% last year. The company was successful in increasing the RPMs while the ASMs declined 0.6%.
Contrary to market opinions that investors should never own an airline stock, airlines have actually outperformed the market over the last 2 years. These moves might surprise most and justify a change in mindset. See the chart below:
Even thought Delta Air Lines stock is up over 50% since December lows, the valuation appears europe travel compelling based on normal sales and earnings multiples europe travel for other profit-focused industries. As an example, the much maligned defense industry trades at an average of around 0.7x revenue. If the airline industry has finally become disciplined after decades of irrational competition, the stocks could be a homerun. As an example, Delta currently trades at only 0.34x 2013 revenue estimates providing for plenty gains to match the defense industry multiple.
All of the mergers in the sector could set up Delta to benefit the most in the short-term. Outside of further losses in the refinery, this company europe travel might have the smoothest operations in 2013. Not to mention europe travel if investors believe in the energy independence theme in the U.S., the airline sector could be one of the biggest beneficiaries of lower fuel costs. Delta might just benefit from a confluence of positive europe travel events finally favoring the airline sector for big investment gains.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DAL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
Additional disclosure: The information europe travel contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion europe travel or consult a financial advisor. Investing includes risks, europe travel including loss of principal.
Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends europe travel at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry... More