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Airline Stocks Offer a Ray of Hope After Monday's Slump
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The airline companies heaved a sigh of relief post Monday’s dramatic fall. This is because shares of key airline players rose yesterday, signaling a big upside and a healthy first-quarter 2018.
Sector participants, namely Delta Air Lines, Inc. (DAL - Free Report) , United Continental Holdings, Inc. (UAL - Free Report) , American Airlines Group Inc. (AAL - Free Report) , Southwest Airlines Co. (LUV - Free Report) , Alaska Air Group, Inc. (ALK - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) , Spirit Airlines, Inc. (SAVE - Free Report) , et al saw a substantial rise in respective stock prices at the close of business on Apr 3. As a result, the sector tracker, NYSE ARCA Airline Index, climbed 3% on the same day.
We remind investors that the likes of Delta, American Airlines, United Continental, Alaska Air Group and Southwest Airlines had suffered sharp declines in stock prices on Apr 2. This downfall was due to fears of intense competition in the Havana route following the U.S. Department of Transportation’s (DOT) decision to grant five U.S.-based leading carriers a tentative approval to operate new scheduled flights in the popular tourist spot.
Let’s delve into the factors leading to the stocks’ recovery:
The Bounce Back
The price surge of major airlines on Tuesday followed after Delta provided an impressive guidance for the first quarter of 2018. The carrier now expects total revenue per available seat mile (TRASM) to increase approximately 5%, i.e, in the high end of its previously guided range of a rise between 4% and 5%. The upside has been driven by strong demand and higher yields. Positive results from all geographic entities and the outperformance of international unit revenues over Delta’s domestic counterpart also contributed to this positive scenario. Additionally, the carrier expects tax rate of around 23% for the first quarter.
However, cost per available seat mile (CASM) excluding fuel and profit sharing is now anticipated to expand around 4%. The earlier view had called for 3-4% growth in the metric. The downside has been attributable to wage increases in April 2017 and a rise in depreciation on aircraft retirements. Weather-related expenses also weigh on costs to the tune of 0.5 points.
The airline maintains its projection for first-quarter earnings per share between 65 cents and 75 cents. Also, its outlook for pre-tax margin remains unchanged at an expansion of 6.5-7.5%. The carrier’s capacity forecast is fixed at 3%. While its prediction for average fuel price per gallon is unaltered at $2-$2.05.
Robust March Traffic
Simultaneously, the airline reported encouraging traffic statistics for March. Consolidated traffic, measured in revenue passenger miles (RPMs), came in at 18.95 billion, up 4.3% year over year. Consolidated capacity (or available seat miles/ASMs) climbed 3% to 21.8 billion on a year-over-year basis. Consolidated load factor or percentage of seats filled by passengers augmented 110 basis points to 86.9% as traffic growth outweighed capacity expansion.
Additionally, the carrier recorded an on-time performance of 86.9% and a completion factor (mainline) of 99% in the month.
In the first three months of 2018, Delta generated consolidated RPMs of 49.28 billion (up 2.8%) and ASMs of 59.46 billion (up 2.7%). Thus, load factor remained flat at 82.9% in March compared with the year-ago figure.
The Near-Term Prospect
The airline industry took off to a bumpy start in the first quarter. Bad weather conditions played a spoiler from the very beginning of the year. Apart from Winter Storm Grayson in January, successive nor’easters in March largely crippled airline operations due to multiple flight cancellations.
Weather-related disruptions have continued in the current month as well with a snowstorm forcing airlines to call off many flights. In fact, 466 flights in/out of the United States were cancelled on Monday in the wake of the storm.
Moreover, Southwest Airlines’ recent guidance cut for first-quarter unit revenues lead to tumbling of other industry players’ shares. Also, in January, United Continental’s commentary on fourth-quarter 2017 conference call that it will continue to increase capacity for the next three years in order to hold market share in the industry caused a decrease in share prices of other sector players.
However, steep demand for air travel and the likely solid first-quarter results are anticipated to ease the pessimism revolving around the industry in the near-term.
Notably, first-quarter results will possibly benefit from a shift in the timing of Easter this year. This is because demand for travel is usually high during the Easter week. Last year, Easter celebrations fell in mid-April.
Impressive Price Performance
The Zacks Airline Industry has gained 1.7% in the last six months, marginally outperforming the S&P 500 index’s 1.3% appreciation.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Airline Stocks Offer a Ray of Hope After Monday's Slump
The airline companies heaved a sigh of relief post Monday’s dramatic fall. This is because shares of key airline players rose yesterday, signaling a big upside and a healthy first-quarter 2018.
Sector participants, namely Delta Air Lines, Inc. (DAL - Free Report) , United Continental Holdings, Inc. (UAL - Free Report) , American Airlines Group Inc. (AAL - Free Report) , Southwest Airlines Co. (LUV - Free Report) , Alaska Air Group, Inc. (ALK - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) , Spirit Airlines, Inc. (SAVE - Free Report) , et al saw a substantial rise in respective stock prices at the close of business on Apr 3. As a result, the sector tracker, NYSE ARCA Airline Index, climbed 3% on the same day.
While United Continental carries a Zacks Rank #2 (Buy), the other above-mentioned stocks have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We remind investors that the likes of Delta, American Airlines, United Continental, Alaska Air Group and Southwest Airlines had suffered sharp declines in stock prices on Apr 2. This downfall was due to fears of intense competition in the Havana route following the U.S. Department of Transportation’s (DOT) decision to grant five U.S.-based leading carriers a tentative approval to operate new scheduled flights in the popular tourist spot.
Let’s delve into the factors leading to the stocks’ recovery:
The Bounce Back
The price surge of major airlines on Tuesday followed after Delta provided an impressive guidance for the first quarter of 2018. The carrier now expects total revenue per available seat mile (TRASM) to increase approximately 5%, i.e, in the high end of its previously guided range of a rise between 4% and 5%. The upside has been driven by strong demand and higher yields. Positive results from all geographic entities and the outperformance of international unit revenues over Delta’s domestic counterpart also contributed to this positive scenario. Additionally, the carrier expects tax rate of around 23% for the first quarter.
However, cost per available seat mile (CASM) excluding fuel and profit sharing is now anticipated to expand around 4%. The earlier view had called for 3-4% growth in the metric. The downside has been attributable to wage increases in April 2017 and a rise in depreciation on aircraft retirements. Weather-related expenses also weigh on costs to the tune of 0.5 points.
The airline maintains its projection for first-quarter earnings per share between 65 cents and 75 cents. Also, its outlook for pre-tax margin remains unchanged at an expansion of 6.5-7.5%. The carrier’s capacity forecast is fixed at 3%. While its prediction for average fuel price per gallon is unaltered at $2-$2.05.
Robust March Traffic
Simultaneously, the airline reported encouraging traffic statistics for March. Consolidated traffic, measured in revenue passenger miles (RPMs), came in at 18.95 billion, up 4.3% year over year. Consolidated capacity (or available seat miles/ASMs) climbed 3% to 21.8 billion on a year-over-year basis. Consolidated load factor or percentage of seats filled by passengers augmented 110 basis points to 86.9% as traffic growth outweighed capacity expansion.
Additionally, the carrier recorded an on-time performance of 86.9% and a completion factor (mainline) of 99% in the month.
In the first three months of 2018, Delta generated consolidated RPMs of 49.28 billion (up 2.8%) and ASMs of 59.46 billion (up 2.7%). Thus, load factor remained flat at 82.9% in March compared with the year-ago figure.
The Near-Term Prospect
The airline industry took off to a bumpy start in the first quarter. Bad weather conditions played a spoiler from the very beginning of the year. Apart from Winter Storm Grayson in January, successive nor’easters in March largely crippled airline operations due to multiple flight cancellations.
Weather-related disruptions have continued in the current month as well with a snowstorm forcing airlines to call off many flights. In fact, 466 flights in/out of the United States were cancelled on Monday in the wake of the storm.
Moreover, Southwest Airlines’ recent guidance cut for first-quarter unit revenues lead to tumbling of other industry players’ shares. Also, in January, United Continental’s commentary on fourth-quarter 2017 conference call that it will continue to increase capacity for the next three years in order to hold market share in the industry caused a decrease in share prices of other sector players.
However, steep demand for air travel and the likely solid first-quarter results are anticipated to ease the pessimism revolving around the industry in the near-term.
Notably, first-quarter results will possibly benefit from a shift in the timing of Easter this year. This is because demand for travel is usually high during the Easter week. Last year, Easter celebrations fell in mid-April.
Impressive Price Performance
The Zacks Airline Industry has gained 1.7% in the last six months, marginally outperforming the S&P 500 index’s 1.3% appreciation.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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