The past week saw premier trade organization Airlines for America (‘A4A’) revealing a bright forecast for U.S. carriers. It is expected that U.S. airlines will make hay in the upcoming Labor Day holiday period (Aug 31 – Sep 6) with travel demand projected to increase 4% on the back of low air fares.

Apart from the A4A forecast, the past week saw the Bureau of Transportation Services revealing data on air fares for July according to which the monthly fall wasthe sharpest in over a year. On the traffic front, JetBlue Airways Corporation’s (JBLU Quick QuoteJBLU - Free Report) share price surged following an improvement in the carrier’s July load factor (% of seats filled by passengers).

On the other hand, Southwest Airlines’ (LUV Quick QuoteLUV - Free Report) share price declined following its July traffic report as the carrier provided a bearish outlook for operating revenue per average seat mile (RASM: a key measure of unit revenue) for the third quarter.

On the earnings front, Latin-American carrier GOL Linhas Aereas Inteligentes S.A.   revealed disappointing numbers for the second quarter of 2016, hurt by currency issues.   

Read the last Airline Stock Roundup for Aug 10, 2016.

Recap of the Past Week’s Most Important Stories

1. According to a forecast made by A4A, approximately 15.6 million passengers are expected to avail the services of U.S. airlines on Labor Day this year, up 4% year over year. The forecast translates into 2.23 million fliers per day during the period (Aug 31–Sep 6), an increase of 82,000 over the comparable figure last year.

Cheap ticket prices are one of the main reasons behind the bullish forecast. According to the organization, air fares declined 5.2% in 2015. The downtrend has continued this year with ticket prices down 6% so far.

2. Southwest Airlines suffered a technology outage last month, which resulted in the cancellation and delay of over 2000 flights. This has affected operating revenue per available seat mile (RASM: a key measure of unit revenue) for the third quarter by 0.5 points on a yearly basis. Given the negative impact, RASM is expected to decline in the range of 3.5% to 4.5% in the third quarter as compared to the earlier projected range of a decline of 3% to 4% (read more: Southwest Airlines July Traffic Up; RASM Guidance Hits Stock).

3. Traffic at JetBlue Airways climbed 6.6% in Jul 2016 from the comparable month a year ago. On a year-over-year basis, consolidated capacity increased 5.5%. Load factor improved 80 basis points to 87.8% as traffic growth outpaced capacity expansion (read more: JetBlue July Traffic Rises, Stock Up on Load Factor Growth).

JetBlue was also in the news for wrong reasons when its flight 429 experienced turbulence, injuring many on board. The flight was en route from Boston to Sacramento when the unfortunate incident occurred (read more: Brutal Turbulence on JetBlue Flight Injures 24 People).

 4. GOL Linhas, weighed down by weak economic conditions and currency headwinds, reported dismal numbers in the second quarter of 2016. Net revenue declined 2% year over year to R$2,089 million (approximately $614.4 million). Cargo revenues improved 4.8% while passenger revenues declined 3%. Revenue passenger kilometers (RPK) deteriorated 11.2% year over year, mainly due to a decrease of 10.6% in International RPK and 11.2% in domestic RPK (read more: GOL Linhas  Reports Profit in Q2; Revenues Decline).

5. According to data released by the Bureau of Transportation Services, airfares declined 4.6% (on an unadjusted basis) in Jul 2016 from the comparable figure in Jul 2015. Moreover, the airfares for the month showed an 8.5% decline compared to Jun 2016, courtesy soft oil prices. Apart from cheap oil, capacity-related woes, which have hurt airline companies for quite some time, are being cited as the reason behind the substantial fall in July airfares.

With airline stocks already struggling, the July reading on airfares imply further struggles for the carriers on the top-line front. The sharp fall in air fares prompted by weak oil prices is however an encouraging piece of news for fliers.

6. Copa Holdings (CPA Quick QuoteCPA - Free Report) posted a rise in air traffic for the month of July this year. Traffic – measured in revenue passenger miles (RPMs) – came in at 1.63 billion, up 9.8% from 1.49 billion recorded in Jul 2015 (read more: Copa Holdings Posts Impressive Growth in July Traffic).

7.Delta Air Lines Inc. (DAL Quick QuoteDAL - Free Report) announced plans to launch a new business-class service – the first of its kind in the industry. The company will launch the Delta One suite in fall 2017. Each suite in the business class cabin will have a sliding door which ensures enhanced privacy for customers. The new service will be available on Delta’s A350 flights.

Notably, Delta will be the first airline in the U.S. to take order for the A350. The airplane is expected to operate on routes between Asia and U.S. Delta’s new business class suite is also expected to feature on its Boeing 777 fleet after it features on the A350.

Performance

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

The table above shows that airline stocks exhibited a mixed trend over the past week. Consequently, the NYSE ARCA Airline index gained marginally over the past week. 

Over the course of six months, the NYSE ARCA Airline index appreciated 4.31% on the back of huge gains at GOL Linhas and Virgin America . Virgin America is slated to be acquired by Alaska Air Group (ALK Quick QuoteALK - Free Report) by year-end.

What’s Next for Airline Stocks?

With the earnings season over, stay tuned for the usual news updates.  Focus will also stay on the movement of oil prices given the volatile nature exhibited lately.

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