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Is Flying More Worry-Free than Cruising?

Sunday - 6/23/2013, 2:20pm  ET

Most of us have heard of the incidents that have occurred on cruise lines recently. A May Harris Interactive poll of over 2,000 U.S. adults found consumer perceptions of cruise lines have deteriorated since the beginning of the year, especially for consumers who have not cruised in the past. Could ongoing issues in the cruise industry be turning travelers on to other forms of travel that are perceived to be safer?

The Harris poll found that Americans are showing a greater inclination towards air travel over cruising. Six in ten Americans, or 62%, find air travel more reliable than taking a cruise and 56% agree that air travel is a safer mode of travel than cruising. One-third of Americans find cruises to be "worry-free," though this perception was affected by past cruising experience. Travelers who have cruised in the past, about 51%, are more likely to view cruises as "worry-free" than the 22% who have not taken a cruise.

With these results, there’s a possibility that the ongoing issues in the cruise line industry can create opportunities for airlines such as US Airways , Delta Air Lines , and JetBlue Airways to attract more passengers.

US Airways has record first quarter

US Airways had record profits in the first quarter of 2013 of $55 million, or $0.31 per diluted share. This compares to a $22 million net loss, or -$0.13 per share, in the first quarter 2012. The company’s record revenues were driven by strong demand and high passenger load factors, which are measurements of an airline’s ability to use the available capacity on its planes. More recently, the company had a record load factor in May of 85.8%. May’s mainline revenue passenger miles increased 5.9%, while mainline capacity increased 3.9% versus the same period last year.

The company’s merger with American Airlines is expected to close in the third quarter of 2013. According to a company press release, the combined entity is expected to generate $1 billion in “annual synergies” by 2015 and American is expected to emerge from bankruptcy once the merger is finalized.

There are arguments both in favor and against this merger. Those in favor believe the combined entity will gain cost efficiencies and a broader network of travel routes, while customers benefit from more choices and better service. Critics argue that greater consolidation in the industry reduces competition, which leads to higher prices and a reduced number of choices for consumers.

US Airways currently trades at 5.8 times its 2014 earnings and is projected to grow 1.4% next year; earnings-per-share for 2014 is estimated to increase by $0.04 to $2.97. However, analysts’ estimate growth over the next five years to be around 60%.

Is Delta ready for takeoff?

Delta Airlines had higher passenger revenue in the Mar. 2013 quarter due to yield improvement; net income for the quarter was $7 million, or $0.01 per diluted share. Total passenger revenue rose 1% to $7.3 billion and was dragged down by a 7% decrease in revenue from regional carriers in the amount of $107 million. Fuel expenses, Delta’s single largest expense, rose 2%.

The company’s financial and operating performance for May 2013 saw consolidated passenger unit revenue increase 0.5% year over year. Delta’s May on-time arrival rate was 86.2% and the company completed 99.9% of flights. Company shares trade at 6 times its 2014 earnings, and estimated growth for 2014 is around 14% and 24% for the next five years. Full year earnings-per-share for 2013 are expected to be $2.65 and are estimated to increase to $3.04 in 2014.

JetBlue has flat profits but customers like service

JetBlue reported profits for the twelfth consecutive quarter on Mar. 31, 2013. Net income was $14 million, or $0.05 per diluted share versus first quarter 2012 net income of $30 million, or $0.09 per diluted share. The drop in net income was attributed to decreases in demand related to Hurricane Sandy in the Northeast and higher-than-expected maintenance costs.

JetBlue’s load factor for May 2013 was 85.1%, 0.3% higher than last year’s 84.8%. The company completed 99.6% of flights and had an on-time performance rate of 80.3%. EPS for 2013 is estimated at $.52 and for 2014 $.70. With an estimated growth rate of 34% for 2014 and 26% for the next five years, the current share price seems reasonable at 9 times its 2014 earnings. Another positive note for the company -- a recent survey by ACSI gave the airline a score of 80 out of a possible 100 in airline customer satisfaction.

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