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Airline Stock Roundup: Improved Q4 Unit Revenue Views from Delta; FLL Shooting & More

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The past week saw airline heavyweights like Delta Air Lines (DAL - Free Report) , United Continental Holdings (UAL - Free Report) and Southwest Airlines (LUV - Free Report) unveiling bullish unit revenue views for the fourth quarter of 2016. The carriers came out with the improved projections while revealing their respective traffic numbers for the month of December.

However, the past week was also witness to a tragic incident at the busy Fort Lauderdale-Hollywood International Airport (“FLL”) when a man, identified as Esteban Santiago, opened fire in the baggage claim area of Terminal 2 (where Delta Air Lines operates). At least five people were killed in the shooting, while many more were injured. The violent incident resulted in carriers temporarily suspending operations to and from the airport.

Flight services were also disrupted by natural causes last week. Winter storms that ravaged through southeast U.S. cities resulted in flight cancellations.

In a more positive development, the past week saw JetBlue Airways (JBLU - Free Report) inking a five-year deal with Canadian company Premier Aviation for heavy maintenance and painting of Embraer 190 planes.

Transportation - Airline Industry 5YR % Return

 

Transportation - Airline Industry 5YR % Return

Read the last Airline Stock Roundup here.

Recap of the Past Week’s Most Important Stories

1. Delta Air Lines’ passenger unit revenue was flat year over year for December. The metric is expected to decline 2.5% to 3% in the fourth quarter, which is a much more favorable reading than the earlier projection of a decline of 3% to 5%. Operating margin for the quarter is still expected in the band of 10.5–11%. Additionally, load factor (percentage of seats filled with passengers) in December improved 90 basis points (bps) to 85.3% as traffic growth (2.6%) outpaced capacity expansion (1.5%) for the month.

2. United Continental too unveiled an improved fourth-quarter forecast with respect to passenger unit revenues. The Chicago, IL-based carrier expects this metric, which is a measure of sales relative to capacity for a carrier, to decline in the band of 1.25–1.75% on a year-over-year basis. The view represents a marked improvement from the earlier guidance, when the metric was expected to decline in the band of 3–4%. Better-than-expected close-in bookings and yields led to the improved view. The carrier said that in the two weeks leading to Christmas, business demand exceeded expectations and holiday season demand for leisure surged.

Apart from the bullish fourth-quarter unit revenue view, United Continental raised its guidance for pre-tax margin (adjusted). United Continental now expects the metric in the range of 9.25% to 9.75% (the previous guidance with respect to the metric was in the band of 7.5% to 8.5%). The company also revealed that consolidated traffic – (measured in revenue passenger miles or RPMs) – for the month of December climbed 2.6% year over year to 17.6 billion. RPMs increased both in the domestic and international markets.

Consolidated capacity – measured in Available Seat Miles – was up 2.6% to 21.2 billion. Furthermore, load factor rose marginally to 83.1% in the final month of 2016. For full-year 2016, consolidated traffic and capacity increased 0.8% and 1.4%, respectively. Load factor contracted 50 bps to 82.9%.

3. Southwest Airlines revised its operating revenue per ASM (RASM) guidance for the fourth quarter of 2016. RASM is now expected to decline in the range of 3% to 4% from the fourth quarter of 2015 compared with the earlier guidance of a decline in the range of 4% to 5%. The improvement in outlook was driven by better close-in yields and traffic results for December. Load factor for the month deteriorated 40 bps to 82.6% as capacity expansion (4.8%) outpaced traffic growth (4.2%).

4. Hawaiian Airlines, Inc. – a subsidiary of Hawaiian Holdings (HA - Free Report) – posted significant rise in air traffic in the month of December. Traffic came in at 1.34 billion, up 7.5% from 1.24 billion recorded a year ago. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) inched up 5.4% to 1.59 billion.

Moreover, load factor increased to 84.1% from 82.5% in Dec 2015. This was because traffic growth outpaced capacity expansion in the month for the Zacks Rank #1 (Strong Buy) carrier (Read more: Hawaiian Holdings Gains on Impressive Traffic Results). You can see the complete list of today’s Zacks #1 Rank stocks here.

5. Multiple flights were cancelled, causing harassments to passengers, due to the FLL shooting and subsequently the storm that hit southeast U.S. cities, including hubs of Delta and American Airlines Group (AAL - Free Report) . As compensation, many carriers offered “travel waivers” (Read more: US Carriers Cancel Flights as FLL Shooting & Storm Wreak Havoc).

6 JetBlue Airways and Premier Aviation announced that they have entered into a five-year agreement for heavy maintenance and painting of Embraer 190 aircrafts. Per the deal, aircraft maintenance will commence immediately on two lines of the E-190 aircraft in Rome, NY. The above-mentioned agreement is likely to see job creation for skilled labor in Oneida area, in addition to Rome, NY. Both companies have historically supported the region for business and job creation. (Read more: JetBlue Corp. Inks Agreement with Premier Aviation).

7. Alaska Air Group (ALK - Free Report) posted a significant rise in air traffic for the month of December. Traffic improved 5.6%, while capacity expanded 5%. Load factor improved to 83.1% from 82.6% in Dec 2015 as traffic growth far exceeded capacity expansion. For 2016, Alaska Air Group generated a 10.8% increase in traffic, while capacity expanded 10.2%, both on a year-over-year basis. Load factor was 84.1% compared with 83.7% in 2015. The company included the performance of Virgin America, which it acquired on Dec 14, 2016, in its results. During the week, Alaska Air Group started operating scheduled. commercial flights to Havana.

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

-0.53%

30.37%

UAL

4.84%

73.69%

GOL

4.22%

55.38%

DAL

5.01%

33.6%

JBLU

0.89%

30.57%

AAL

4.86%

55.58%

SAVE

2.04%

23.62%

LUV

2.78%

25.1%

CPA

3.53%

60.01%

ALK

5.5%

52.93%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that almost all airline stocks traded in the green in the past week resulting in the NYSE ARCA Airline index gaining 1.44% to $113.15 over the period. Shares of Alaska Air Group appreciated the most (5.5%) on the back of its encouraging December traffic report. Over the course of six months, the NYSE ARCA Airline Index appreciated 33.02%.

What's Next in the Airline Space?

Investor focus will remain on the fourth quarter earnings report of Delta Air Lines on Jan 12. With this the carrier will kick start the fourth quarter earnings season for airline stocks.


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