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Airline Stock Roundup: Bullish Updates from Delta Air Lines, Southwest Airlines;Traffic Data in Focus

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The past week turned out to be a busy one for the airline space with updates flowing in from different corners. However, the most notable of them came from Delta Air Lines (DAL - Free Report) and Southwest Airlines (LUV - Free Report) .

The carriers’ bullish capacity-related forecasts at the 9th Annual Global Transportation Conference on Sep 7, had a positive impact on the entire sector. In fact, the impressive projection found favor with investors, prompting stocks of the U.S. carriers to gain the most in almost two months, according to a Bloomberg report.

Delta Air Lines was also in focus due to its efforts to expand in Asia. Furthermore, the past week saw airline heavyweights like American Airlines Group (AAL - Free Report) , United Continental Holdings (UAL - Free Report) and JetBlue Airways Corp. (JBLU - Free Report) posting their respective August traffic numbers. Though American Airlines and United Continental came up with disappointing numbers, JetBlue’s traffic report was encouraging.

TRANSPORTATION-AIRLINE Industry Price Index

 

TRANSPORTATION-AIRLINE Industry Price Index

 (Read the last Airline Stock Roundup for Sep 07, 2016).

Recap of the Past Week’s Most Important Stories

1. Southwest Airlines stated at the Transportation Conference that its 2017 capacity is expected to expand less than 4% year over year. The projection compares favorably with the view for 2016, wherein capacity is projected to increase in the range of 5% to 6%. The carrier further mentioned that most of the 2017 capacity growth (approximately 2 points) would come from domestic markets, while international expansion would account for 1–2 points.

On the other hand, Delta Air Lines expects its U.S. capacity to expand by only 2.5% in the final quarter of the year. This compares favorably with the 5.7% capacity growth for the carrier in the U.S. market in the first half of 2016 (Read more: Why Airline Stocks Surged in Wednesday's Trading Session).

2. On the traffic front, Southwest Airlines announced that revenue passenger miles or RPMs (a measure of air traffic) improved 3.6% year over  year to 10.3 billion. Available seat miles or ASMs (a measure of capacity) also grew 4.6% to 12.7 billion. Another important metric – load factor (percentage of seats filled by passengers) – deteriorated 80 basis points (bps) to 84.6% during the month as capacity expansion outpaced traffic growth (Read more: Southwest Airlines August Traffic Grows; Stock Up).

On a separate note, Southwest Airlines announced that it has reached a tentative agreement with Transport Workers Union Local 556, which represents its Flight Attendants. The deal, if ratified, will benefit the company and its operations (Read more: Southwest Airlines-Flight Attendant Union Ink Tentative Deal).

3. Copa Holdings SA (CPA - Free Report) posted a rise in air traffic for Aug 2016. Traffic – measured in revenue passenger miles (RPMs) – came in at 1.56 billion, up 13.2% from 1.38 billion recorded last August. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) inched up 3.4% to 1.87 billion (Read more: Copa Holdings Traffic Increases 13.2% in August). Currently, Copa Holdings sports a Zacks Rank # 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

4. At American Airlines, traffic measured in revenue passenger miles (RPMs) dipped 2.8% year over year to 20.4 billion. The downside was attributable to lackluster performances both on the international as well as domestic front (Read more: American Airlines Hurt by August Load Factor Decline).

5. United Continental Holdings reported modest traffic numbers for the month of August. The company’s load factor declined as traffic growth was outpaced by capacity expansion. The decline in load factor impacted the stock negatively. Traffic was up 0.6% and capacity grew 1.9% to 23.3 billion (Read more: United Continental August Traffic Rises, Load Factor Declines).

6. JetBlue Airways reported robust traffic numbers for August. Traffic climbed 6.2% while capacity expanded 5.7%. The increase in capacity outpaced traffic growth, leading to a 40 basis point expansion in load factor to 87.4%. Revenue per available seat mile (RASM – a key measure of unit revenue) declined approximately 5.5% in the month. The metric is expected to decrease in the band of 3–4% in the third quarter. This marks an improvement from the 8.2% decline witnessed in the second quarter. The increase in load factor and the bullish RASM forecast impacted the stock positively, following the report on Sep 13.

In a separate development, JetBlue announced that Mark Powers, the current executive vice president and chief financial officer (CFO), will retire on Nov1, 2016. Powers, who joined JetBlue in 2006, will be replaced by Jim Leddy as interim CFO (subject to approval by the company’s board of directors). Leddy is currently the senior vice president and treasurer of the low-cost carrier.  Powers will remain with the company for a year from Nov1 as an advisor.

Performance

The following table shows the price movement of the major airline players over the past week and during the last 6 months. 

Company

Past Week

Last 6 months

HA

-2.60%

2.95%

UAL

-0.25%

-12.44%

GOL

-12.52%

134.69%

DAL

2.53%

-21.63%

JBLU

1.47%

-14.52%

AAL

0.81%

-12.26%

SAVE

-5.16%

-18.54%

LUV

0.11%

-15.24%

VA

0.02%

92.43%

ALK

-2.88%

-14.38%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that airline stocks exhibited a mixed trend in the last five trading days. As a result, the NYSE ARCA Airline index was almost flat at $90.51 over the past week.  Shares of Delta Air Lines gained the most – 2.53% to be precise – driven by the bullish capacity related update. GOL Linhas was the biggest loser, with its shares plunging 12.52% over the period.

Over the last six months, the NYSE ARCA Airline index appreciated 4.68% driven by huge gains at GOL Linhas and Virgin America.

What's Next in the Airline Space?

Apart from usual news updates, passenger airline employment data for July is also expected over the next few days.


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