Our team has decided that Southwest Airlines is the best bet
for investments at this time. This
decision was not an easy one nor was it taken lightly. Delta Airlines is projected to have over 5
billion dollars in free cash flow by the end of 2014 and has already been
paying out to its investors. So why did
we ultimately select Southwest Airlines? The two major reasons that we have
decided Southwest Airlines provides a better investment opportunity are: rising fuel
costs and room for improvement.
The cost of jet fuel is increasing year over year, Southwest Airlines recognizes this and is upgrading their fleet to newer more fuel efficient Boeing 737-700 models. On the contrary, Delta Airlines is purchasing used aircraft to expand their fleet from other airlines. Delta is currently purchasing McDonnell Douglas (out of manufacture) airplanes from oversees venders as well as Boeing model 717’s from Southwest’s Air-Tran acquisition. Their strategy is to purchase these older airlines in order to recruit pilots that are familiar with the aircraft. Southwest’s effort to modernize their fleet will place them in a better position to accommodate rising fuel costs. The small investment for new aircraft today will pay dividends in the future. It is our opinion that Delta will eventually be stuck with out of date planes, high maintenance bills, high fuel costs and will inevitably run out of pilots that are trained on these legacy aircraft. This combination of circumstances will take its toll on Delta’s stock price at some point and time.
The second major factor in our decision is which organization has more room for improvement. Delta Airlines is currently operating at a margin of around 10% whereas Southwest is at 4%. These numbers illustrate that Delta is already pretty efficient and Southwest still has plenty room to work with. This simply leads us to believe that when Southwest increases their margin their stock price will reflect their gains.
In summary, both organizations offer prime investment opportunities at this time. Taking a deeper look into the operating strategies of these organizations leaves us to believe that Southwest Airlines has a better outlook and is the clear investment choice.
The cost of jet fuel is increasing year over year, Southwest Airlines recognizes this and is upgrading their fleet to newer more fuel efficient Boeing 737-700 models. On the contrary, Delta Airlines is purchasing used aircraft to expand their fleet from other airlines. Delta is currently purchasing McDonnell Douglas (out of manufacture) airplanes from oversees venders as well as Boeing model 717’s from Southwest’s Air-Tran acquisition. Their strategy is to purchase these older airlines in order to recruit pilots that are familiar with the aircraft. Southwest’s effort to modernize their fleet will place them in a better position to accommodate rising fuel costs. The small investment for new aircraft today will pay dividends in the future. It is our opinion that Delta will eventually be stuck with out of date planes, high maintenance bills, high fuel costs and will inevitably run out of pilots that are trained on these legacy aircraft. This combination of circumstances will take its toll on Delta’s stock price at some point and time.
The second major factor in our decision is which organization has more room for improvement. Delta Airlines is currently operating at a margin of around 10% whereas Southwest is at 4%. These numbers illustrate that Delta is already pretty efficient and Southwest still has plenty room to work with. This simply leads us to believe that when Southwest increases their margin their stock price will reflect their gains.
In summary, both organizations offer prime investment opportunities at this time. Taking a deeper look into the operating strategies of these organizations leaves us to believe that Southwest Airlines has a better outlook and is the clear investment choice.