Dow Gains 65, but Delta Air Lines, United Continental Make Transports the Hot Market

Earnings season continued to help move the Dow higher, but the Transports set a new record on strength in airlines.

Dan Caplinger
Dan Caplinger
Apr 22, 2014 at 9:03PM

The Dow Jones Industrials (DJINDICES:^DJI) continued their winning ways Tuesday, climbing 65 points, and inching to within 1% of a new all-time record high on the strength of solid earnings reports from key companies in the U.S. economy. Yet, for those who are impatient with the Dow Jones Industrials for failing to set new records during 2014, the Dow Jones Transportation Average (DJINDICES:DJT) gave investors everything they could want and more, as Delta Air Lines (NYSE:DAL) and United Continental Holdings (NASDAQ:UAL) pulled the Transports to unprecedented heights of their own today.

Within the Dow Jones Industrials, neither of the companies that reported earnings this morning made major moves, leaving gains to come from other stocks responding to issues like housing data. But in the Transports, investors have huge expectations for Delta and United Continental, both of which will report their earnings later this week.

For Delta Air Lines, which climbed 3%, a new survey from the American Customer Satisfaction Index group showing that it led the pack of major legacy airlines in customer satisfaction only highlighted the strength that the carrier has enjoyed in recent years. With attention to customer service, while also reaping immense amounts of revenue from ancillary fees, Delta Air Lines has recovered impressively from leaner times during which profitability seemed unattainable. Delta reports tomorrow, and investors expect to see the airline's net income nearly triple from the year-ago quarter despite winter-related issues that could hold Delta back from even better performance. The question for Delta Air Lines is whether it can sustain these high earnings levels; but if it can, then its valuation looks attractive on a forward-looking basis.

United Continental, however, managed to post even sharper gains of 4.5% despite finishing dead last in the ACSI customer-satisfaction survey. Already, United Continental has warned that figures for capacity and passenger-unit revenue would fall short of the airline's previous guidance, again as weather affected its ability to move passengers on time and forced extensive flight cancellations. From an earnings perspective, investors expect United Continental to post a wider loss than last year; but they also see the airline's earnings recovering more sharply later this year and next.

Strong airlines have sent the Transports to record highs, but they've also done their part to boost the Dow Jones Industrials, as well. With an increasing number of Dow-component companies focusing their efforts on serving the aerospace industry, continuing strength for the Transports, in general, and for airlines, specifically, could be what eventually sends the Dow Jones Industrial Average to new records of its own.