By Larry Gellar
As reported by the Wall Street Journal, the newest customer service rankings are out for airlines. Let’s see what the report had to say about these five airlines:
JetBlue Airways Corporation (NASDAQ:JBLU) reportedly had the most frequent delays in addition to suffering from the longest delays. In fact, one out of every eight flights was at least 45 minutes late last year, and the average delay for a late flight was 65 minutes. The company blames that on the fact that 73% of its flights depart to or arrive from New York or Boston, which means weather is often be a problem. That makes sense because Hurricane Irene as well some snowstorms in the colder months would’ve obviously put a damper on performance. Speaking of performance, JetBlue was trading for under $3.50 in November, but now the stock is almost at $5.50. The airline continues to expand its flight offerings, including a new service from Hartford to San Juan. Here’s what JetBlue’s John Checketts has said,
JetBlue thinks the flight should be an enjoyable part of the journey, from the most legroom in coach to unlimited name brand snacks, and your own personal entertainment choices. We would like to thank the communities in Connecticut and Puerto Rico for their strong support of JetBlue.
Two statistics that stand out for JetBlue are gross margin of 29.05% and operating margin of 7.19%. In our opinion, JetBlue is one of the better bets in this industry.
United Continental Holdings (NYSE:UAL) didn’t fare very well in the Wall Street Journal’s report. The problem is that the merger between United and Continental still hasn’t created the type of benefits that customers (and shareholders) were expecting. The airlines are still working off separate passenger systems, although the company hopes to have one reservation system in place soon. Regardless, United Continental’s stock price has suffered. The stock was trading for over $27 last February, but now the share price is closer to $18. Meanwhile, recent news has centered on new regulations in Europe. Airline operators there will now have to pay for their planes’ carbon dioxide emissions, and it appears that price increases are being passed on to consumers. Indeed, United Continental is following Delta’s lead by starting a $3 extra fee for European travelers. As for value metrics, ratios like price to earnings, price/earnings to growth, and price to sales are pretty low for United Continental. That probably has to do with the airline’s perceived lower quality, although margins are actually pretty strong – those numbers are 27.65% gross and 6.71% operating. Cash flows for United Continental have been mixed - $5.027 billion came in during 2010, while $1.085 billion flowed out during the first 9 months of 2011.
Alaska Air Group, Inc. (NYSE:ALK) was the big winner in the Wall Street Journal’s report. The airline placed first for on-time arrivals, and the key to the company’s success is internal controls. Data is collected for all of the things that are required before an airplane can take off. That means problem areas can be corrected, and it encourages employees to do all of their tasks when they are supposed to be done. Here’s what chief operating officer Ben Minicucci says, “There are so many moving parts. You just can't tell people to get the airplane out on time.” That certainly seems like a smart system, and ALK’s stock price has benefited greatly. Shares were only slightly above $50 back in the beginning of October, and now the current stock price is almost $75. As described here, specific trends are also working in Alaska Air Group’s favor. December traffic increased by 5.5% compared to 2010, which was more than the amount that seat capacity increased. Revenue per seat-mile also went up by 5-6%, and that means that Alaska Air Group is having success increasing its prices. At the same time, fuel-per-mile costs were actually slightly lower this December.
Delta Air Lines Inc. (NYSE:DAL) did pretty well in the Wall Street Journal’s Middle Seat rankings, which was quite a turnaround from last year. In 2010, Delta had all sorts of problems including canceled flights, customer complaints, baggage issues, and simply being late. Investments in technology and human resources helped to change things in 2011. New maintenance initiatives also allowed Delta to keep things running at its less busy operations. Additionally, Delta performed well in a report from Flightstats. In a measure of punctuality, Delta ranked second, with 83% of flights arriving on time. Meanwhile, Delta’s traffic was up 0.2% in 2011, which compares a bit unfavorably to its 0.8% increase in capacity. More specifically, domestic traffic decreased 0.7%, but international traffic increased 0.5%. Total number of passengers overall also increased a bit from last year. As for value metrics, ratios like price to earnings, price/earnings to growth, and price to sales are pretty high for Delta since many investors feel that this company is the leader of the industry. Margins are a bit weak though – those numbers are 19.33% gross and 5.23% operating. Furthermore, Delta has had cash flowing out for quite some time now: $1.715 billion flowed out during 2010 and $585 million flowed out during the first three quarters of 2011.
Southwest Airlines Co.’s (NYSE:LUV) results as reported by the Wall Street Journal were pretty interesting. The company is notorious for allowing customers to bring two checked bags without an extra fee, and the airline’s advertising has become pervasive. On the other hand, Southwest was the second-worst at getting bags to their correct destination. Ironically, the only airline that did worse – AirTran Airways – was actually acquired by Southwest in May. This problem for Southwest may improve as the company becomes used to its increased volume though, and many of the reasons why Southwest in particular suffers have to do with the variety of connections that it offers. While Southwest has said that it is working on different ways to fix the bag problem, the good news is that customers aren’t complaining very much. In fact, the Wall Street Journal’s set of statistics shows that Southwest had the least complaints per passenger. Regardless, happy customers haven’t helped the stock price very much. While LUV was trading for over $13 per share a year ago, the stock price is now between $8 and $9. Despite that decline, LUV still has exceptionally high price to earnings, price/earnings to growth, and price to sales ratios. Furthermore, Southwest doesn’t have great margins – those numbers are 22.61% gross and 5.85% operating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.