After a year of soaring jet fuel prices and declining shares, some airlines appear to be preparing for a return to profitability. The still depleted prices, the result of increased scrutiny on added charges, created to compensate for losses due to fuel prices and decreasing volume, are no longer in line with the health of the companies themselves. Airlines have found a way back to profitability despite the challenges of the year. After an even outcome for the seasonably low first quarter, the second quarter edged to marginal profitability and the third quarter looks primed for a return to strength. Striking the balance between appropriate pricing and customer volume can be difficult task, wrought with trial and error, but airlines recently appear to have found the formula.
Granted investors should proceed with caution in spite of the recent turn toward profitability. Airline stocks remain challenged by debt and what appears to be ongoing inflation of jet fuel, up 40 percent year over year. Additionally, airline stocks tend to be tightly tied to economic circumstances. Both individuals and businesses are quick to cut back on travel expenses when the going gets rough. With the business world increasingly digital, at least some actually travel can be avoided.
That said, sometimes business travel, which accounts for around two-thirds of total revenue for carriers, is necessary and people will continue to fly. In order to account for any lessening numbers, many airlines have cut flights from unprofitable destinations or found other ways to save money.
Current valuations don’t reflect that, making the airline sector ripe with opportunities for a risk taking investor.
Among the companies worth of consideration is United Continental (UAL)- United Continental has strong profitability as a result of its popular West coast routes and hubs in high traffic ports like Newark. The company appears to be on track to be in the black this year in spite of having fallen 25 percent since the start of 2011.
JetBlue (JBLU) Jetblue is down nearly 40 percent for the year, but appears to have refocused on profitability and dedicated itself to finding a way to cut costs through flight reduction. In spite of the massive losses in share prices, the company, like United Continental is expected to have resurgence in the final part of the year and end in the black.
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