The past week saw Delta Air Lines (DAL - Analyst Report) and Alaska Air Group (ALK - Analyst Report) revealing their respective September traffic figures. While Alaska Air Group recorded improvement in load factor (percentage of seats filled by passengers), the metric declined at Delta Air Lines as the Atlanta, GA-based carrier’s traffic growth was outpaced by capacity expansion.
Nevertheless, Delta Air Lines reported improved PRASM performance for September. The report, which was released on Oct 4, caught the attention of investors and led to stock price appreciation.
Dallas-based Southwest Airlines (LUV - Analyst Report) also featured in the news in the past week, albeit for wrong reasons. According to a Bloomberg report, the carrier’s tentative pay-related deal with its pilots (inked in Aug 2016) might have hit rough weather as Delta Air Lines has already inked an “agreement in principle” with its pilots that promises higher pay.
On the price front, NYSE ARCA Airline index gained 1.15% in the past week to $91.74 despite oil prices surging after the Organization of Petroleum Exporting Countries (OPEC) announced its decision to cut oil production. OPEC has decided to lower output by as much as 750,000 barrels a day from November to prevent oil prices from falling further.
Interestingly, the lack of reaction in the airline space to the OPEC announcement clearly indicates that oil prices are no longer the primary catalysts governing airline stock price movements. Oil prices have been weak for the last two years. Given the extended period of slump, it has been already priced in.
(Read the last Airline Stock Roundup for Sep 28, 2016).
Recap of the Past Week’s Most Important Stories
1. Delta announced a 1.4% increase in revenue passenger miles (RPMs: a measure of traffic) and 1.8% rise in average seat miles (ASMs: a measure of capacity) for the month of September. Load factor decreased 40 basis points to 84.6% in the month. The company witnessed a 3% dip in PRASM in the month, a significant improvement from the PRASM decline of 7% and 9.5% in July and August, respectively.
The metric is expected to decline approximately 7% in the third quarter. Delta continues to expect operating margin in the band of 18–19% in the third quarter. Average fuel price per gallon is still expected in the band of $1.47 to $1.52. System capacity is projected to increase approximately 1.5% in the third quarter.
On a separate note, Delta Air Lines announced that it intends to operate additional flights to Europe from the next summer (Read more: Delta Air Lines to Start New Flight Services to Europe).
2. Alaska Air Group announced its intention to commence flights to the Cuban capital of Havana from Jan 5, 2017. According to a media report, the carrier was originally scheduled to start flying to Havana from Nov 29, 2016. However, it requested for permission to delay due to the upcoming holiday season rush (Read more: Alaska Air Group to Initiate Flights to Havana Next Year).
On a separate note, Alaska Air Group reported a 7.4% increase in September traffic. Capacity too increased 4.5%. Load factor climbed 250 basis points to 84.1%. At the end of the first nine months of 2016, Alaska Air recorded 10% increase in RPMs to 27.6 billion, while ASMs grew 10.7% to 32.7 billion, both on a on a year-over-year basis. Load factor declined 50 basis points to 84.2%. The strong traffic report impacted its shares positively on Oct 4.
3. Ireland-based Ryanair Holdings (RYAAY - Snapshot Report) reported solid traffic data for the month of September. The upside came on the back of its customer friendly “Always Getting Better” scheme. The carrier’s traffic climbed 13% to 10.8 million in the month. Load factor rose to 95% from 94% a year ago. However, the budget carrier said that it expects average air fares in the six-month period leading to Mar 2017 to fall in the band of 10–12%.
Moreover, according to a Bloomberg report mentioned that the carrier does not expect traffic to the U.K. to grow despite the continued weakness in the country’s currency (pound) compared with the U.S. dollar. The carrier’s Chief Executive Officer apparently stated last month that Ryanair’s profits are expected to be hurt for four years as a consequence of the Brexit vote in June this year.
The Zacks Rank #2 (Buy) company saw its share price declining over the past five days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
4. According to a Bloomberg report, pilots at Delta Air Lines would see their pay increase 30.2% over the next four years if the “agreement in principle” inked last week materializes. However, this agreement is likely to be responsible for Southwest Airlines’ tentative deal with its pilots falling through. This is because Southwest Airlines pilots would see their pay increase only 29.4% over four years if the deal progresses. Apparently, pilots at the low-cost carrier are asking for a revised contract.
5. Close on the heels of JetBlue Airways Corporation’s (JBLU - Analyst Report) renewable fuel deal, American Airlines Group (AAL - Analyst Report) too came into focus with an environment-friendly update. In a bid to reduce carbon emission, the carrier has retained the services of Ocean Park, a boutique investment bank that has a three-decade long track record of substantial contributions toward the development of the bio fuels industry. Ocean Park will assist the Fort Worth, TX-based carrier in evaluating alternative jet fuels among other things. Given Ocean Park’s vast experience in the field, the move is a prudent one from American Airlines.
The following table shows the price movement of the major airline players over the past week and during the last 6 months.
Last 6 months
The table above shows almost all airline stocks traded in the green over the past week. Shares of American Airlines appreciated the most (7.20%). Over the course of six months, the NYSE ARCA Airline index appreciated 0.03%.
What's Next in the Airline Space?
We expect September traffic updates from the likes of Southwest Airlinesand United Continental Holdings (UAL - Analyst Report) in the coming days.
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