We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Airline Stocks Decline on Wednesday's Trading: Here's Why
Read MoreHide Full Article
Airline stocks have been flying high of late, owing to multiple tailwinds. The new tax law is also a boon for the sector participants. In fact, several airline majors namely United Continental Holdings, Inc. (UAL - Free Report) , Delta Air Lines, Inc. (DAL - Free Report) and Hawaiian Airlines — the wholly owned subsidiary of Hawaiian Holdings, Inc. (HA - Free Report) — recently raised respective unit revenue guidance for the first quarter of 2018.
Per the current scenario, carriers are left with huge savings from the reduced corporate tax rate as a result of the enactment of the new tax law. This in turn has prompted carriers like Alaska Air Group, Inc. and SkyWest, Inc. to announce dividend hikes, indicating the companies’ financial prosperity.
Price Performance
The positive sentiment surrounding airlines can be gauged from the price performance below. While the Zacks Airline Industry has gained 2.5% in a month, the S&P 500 index has lost 1.3%.
Airlines Grounded on Wednesday
Curbing optimism, shares of key airline players tumbled on Mar 21 following Southwest Airlines Co.’s (LUV - Free Report) guidance cut for first-quarter unit revenues. Shares of Southwest Airlines declined 4.8% following the bleak outlook. The damage was not limited to Southwest Airlines, as shares of other carriers like American Airlines Group Inc. (AAL - Free Report) , Spirit Airlines, Inc. (SAVE - Free Report) , Delta and JetBlue Airways Corporation (JBLU - Free Report) also declined on the day. Consequently, the NYSE ARCA Airline Index slid 1.2% at the close of trading on Mar 21.
Southwest Airlines now anticipates first-quarter revenue per available seat mile (RASM) to be flat year over year. The former forecast was an increase of 1-2%.
The view was lowered based on the company’s current booking and revenue trends. The airline’s year-over-year RASM trend for non-peak travel periods during March was lower-than-expected mainly due to a competitive fare environment and reduced travel demand. The carrier has cited the timing of spring break holidays as the reason for lower-than-expected travel demand. Lower air fares continue to pressurize passenger revenue yields. Additionally, the metric along with load factors are also being affected by the airline’s sub-optimal first-quarter 2018 flight schedule on account of the retirement of its Boeing 737-300 Classic fleet.
However, per the company, current customer demand remains strong. RASM trends are also favorable owing to the peak Easter travel period. Southwest Airlines thus continues to expect year-over-year RASM growth in 2018.
Further, the company has lowered its outlook for first-quarter costs. It now estimates operating expenses per available seat mile (CASM) excluding fuel and oil expense plus profit-sharing expense to rise 0-1%. Previous guidance had called for a 0.5-1.5% increase in the metric. Additionally, first-quarter fuel costs are assumed at approximately $2.10 per gallon, lower than $2.10-$2.15 expected earlier.
Other Headwinds
The airline companies have been struggling with persistent high costs and lower air fares, denting their profits in the process. Expanding capacity implies exorbitant labor, fuel and operational costs and cheap air tickets. Though reasonable air fares bode well for customers, it reduces unit revenues of carriers, affecting the top line.
It is to be noted that on fourth-quarter conference call, United Continental stated that it will continue to augment capacity in a bid to maintain its market share at major airport hubs to tackle competition from carriers offering discounts. Capacity growth between 4% and 6% year over year is expected in 2018. Moreover, a similar increase in the metric is forecast for both 2019 and 2020.
Zacks Industry Rank Highlights the Drab Picture
The Zacks Industry Rank of 178 (out of 250 plus groups) carried by the Zacks Airline industry further highlights the negativity revolving around the stocks. This unfavorable rank places the companies in the bottom 30% of the Zacks industries.
We classify our total 250-plus industries into two groups: the top half (i.e. industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
Over the last 10 years, the top half beat the bottom half by a factor of more than 2 to 1 using a week’s rebalance.
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
Airline Stocks Decline on Wednesday's Trading: Here's Why
Airline stocks have been flying high of late, owing to multiple tailwinds. The new tax law is also a boon for the sector participants. In fact, several airline majors namely United Continental Holdings, Inc. (UAL - Free Report) , Delta Air Lines, Inc. (DAL - Free Report) and Hawaiian Airlines — the wholly owned subsidiary of Hawaiian Holdings, Inc. (HA - Free Report) — recently raised respective unit revenue guidance for the first quarter of 2018.
Each stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Per the current scenario, carriers are left with huge savings from the reduced corporate tax rate as a result of the enactment of the new tax law. This in turn has prompted carriers like Alaska Air Group, Inc. and SkyWest, Inc. to announce dividend hikes, indicating the companies’ financial prosperity.
Price Performance
The positive sentiment surrounding airlines can be gauged from the price performance below. While the Zacks Airline Industry has gained 2.5% in a month, the S&P 500 index has lost 1.3%.
Airlines Grounded on Wednesday
Curbing optimism, shares of key airline players tumbled on Mar 21 following Southwest Airlines Co.’s (LUV - Free Report) guidance cut for first-quarter unit revenues. Shares of Southwest Airlines declined 4.8% following the bleak outlook. The damage was not limited to Southwest Airlines, as shares of other carriers like American Airlines Group Inc. (AAL - Free Report) , Spirit Airlines, Inc. (SAVE - Free Report) , Delta and JetBlue Airways Corporation (JBLU - Free Report) also declined on the day. Consequently, the NYSE ARCA Airline Index slid 1.2% at the close of trading on Mar 21.
Southwest Airlines now anticipates first-quarter revenue per available seat mile (RASM) to be flat year over year. The former forecast was an increase of 1-2%.
The view was lowered based on the company’s current booking and revenue trends. The airline’s year-over-year RASM trend for non-peak travel periods during March was lower-than-expected mainly due to a competitive fare environment and reduced travel demand. The carrier has cited the timing of spring break holidays as the reason for lower-than-expected travel demand. Lower air fares continue to pressurize passenger revenue yields. Additionally, the metric along with load factors are also being affected by the airline’s sub-optimal first-quarter 2018 flight schedule on account of the retirement of its Boeing 737-300 Classic fleet.
However, per the company, current customer demand remains strong. RASM trends are also favorable owing to the peak Easter travel period. Southwest Airlines thus continues to expect year-over-year RASM growth in 2018.
Further, the company has lowered its outlook for first-quarter costs. It now estimates operating expenses per available seat mile (CASM) excluding fuel and oil expense plus profit-sharing expense to rise 0-1%. Previous guidance had called for a 0.5-1.5% increase in the metric. Additionally, first-quarter fuel costs are assumed at approximately $2.10 per gallon, lower than $2.10-$2.15 expected earlier.
Other Headwinds
The airline companies have been struggling with persistent high costs and lower air fares, denting their profits in the process. Expanding capacity implies exorbitant labor, fuel and operational costs and cheap air tickets. Though reasonable air fares bode well for customers, it reduces unit revenues of carriers, affecting the top line.
It is to be noted that on fourth-quarter conference call, United Continental stated that it will continue to augment capacity in a bid to maintain its market share at major airport hubs to tackle competition from carriers offering discounts. Capacity growth between 4% and 6% year over year is expected in 2018. Moreover, a similar increase in the metric is forecast for both 2019 and 2020.
Zacks Industry Rank Highlights the Drab Picture
The Zacks Industry Rank of 178 (out of 250 plus groups) carried by the Zacks Airline industry further highlights the negativity revolving around the stocks. This unfavorable rank places the companies in the bottom 30% of the Zacks industries.
We classify our total 250-plus industries into two groups: the top half (i.e. industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
Over the last 10 years, the top half beat the bottom half by a factor of more than 2 to 1 using a week’s rebalance.
Click here to know more: About Zacks Industry Rank
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>