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Analyst Blog

The past week was a busy one for the airlines sector. Last week various media reports indicated the possibility of the proposed acquisition of California-based carrier, Virgin America (VA - Free Report) by Alaska Air Group, Inc. (ALK - Free Report) may be in trouble. As a result, Virgin America shares declined sharply on Sep 22.

Apart from updates on the merger, low-cost carrier JetBlue Airways (JBLU - Free Report) grabbed headlines on account of its codeshare deal with Cape Air.

During the past week, American Airlines Group (AAL - Free Report) also came into focus. According to various media reports, Raymond James downgraded the stock on valuation grounds. Furthermore, a Bloomberg report indicated that Delta Air Lines Inc. (DAL - Free Report) is considering options to introduce larger regional jets into its fleet.

TRANSPORTATION-AIRLINE Industry Price Index

 

TRANSPORTATION-AIRLINE Industry Price Index

(Read the last Airline Stock Roundup for Sep 21, 2016).

Recap of the Past Week’s Most Important Stories

1. To allow the antitrust division of the United States Department of Justice (DOJ) more time to review the proposed buyout of Virgin America by Alaska Air Group, the two companies have agreed not to close the deal before Oct 17 (unless the DOJ provides written concurrence to close within a shorter period) as opposed to the earlier date of Sep 30. Apart from rumors that the deal was in trouble, Virgin America suffered another setback as its flight attendants rejected a tentative agreement (Read more: Virgin America Stock Declines as Merger Concerns Surface).

2. JetBlue Airways announced that it has signed a unilateral codeshare agreement with Hyannis, MA-based Cape Air to expand its partnership with the latter. Per this deal, JetBlue will be tagging Cape Air flights between certain destinations with its code “B6”. (Read more: JetBlue Extends Cape Air Partnership with Codeshare Deal).

3. According to various media reports, analysts at Raymond James downgraded American Airlines on valuation concerns. Analysts at Raymond James believe that American Airlines is more expensive compared to its peers Delta Air Lines and United Continental Holdings (UAL - Free Report) .

Given the plethora of challenges that American Airlines is currently facing, which includes balance sheet weakness, this expensive valuation is not justified. (Read more: Forget American Airlines, Buy These 4 Airline Stocks Instead). Currently, American Airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

4. Shares of Delta Air Lines were positively impacted following a Bloomberg report that the Atlanta-based carrier was weighing options to buy larger (70 to 76 seats) regional jets with a list value of as much as $2.3 billion. As a result, the carrier saw its share price appreciate on Sep 27. This is, however, dependent on its pilots’ union accepting an overhaul of the small-plane fleet. According to the report, the roomier jets are more fuel-efficient and profitable than the 50 seater regional planes that are currently in operation.

5. According to a report published in the Reuters, the International Air Transport Association (IATA) is progressing well as far as recovery of revenues (in air fares) blocked in Nigeria. According to the report, currently the blocked amount was less than half of what the Nigerian economy owed to foreign carriers in June this year.

Foreign exchange issues are worse for foreign carriers in Venezuela, which currently owes $3.8 billion to them. The IATA has filed a request for antitrust immunity with the U.S. Department of Transportation to address the Venezuelan issue.

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

4.84%

4.28%

UAL

-0.24%

-13.11%

GOL

-5.50%

116.48%

DAL

4.65%

-18.03%

JBLU

2.61%

-15.99%

AAL

5.18%

-11.32%

SAVE

10%

-12.28%

LUV

4.96%

-12.57%

VA

-3.87%

40.75%

ALK

0.53%

-17.91%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows most of the airline stocks traded in the green over the past week. However, the gains were muted in nature. Consequently, the NYSE ARCA Airline index increased marginally to $89.92 over the past five trading days. Shares of Spirit Airlines (SAVE - Free Report) appreciated the most (10%). Over the course of six months, the NYSE ARCA Airline index appreciated 1.12%.

What's Next in the Airline Space?

We expect September traffic updates from the likes of Alaska Air Group  and Delta Air Lines in the coming days.



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