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American (AAL), United (UAL) Expand, O'Hare Airport in Focus

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Chicago O’Hare International Airport is one of the busiest airports in the U.S. United Continental Holdings UAL is the largest operator at the airport, followed by American Airlines Group AAL. It is no surprise these two are vying for market share. In fact, both the carriers have recently announced the introduction of new routes from O'Hare.

Other carriers operating at the airport include the likes of Delta Air Lines (DAL - Free Report) and Spirit Airlines SAVE, And all the above-mentioned carriers carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Expansion Drive

In Feb 27, 2017, United Continental announced that it will add six new routes from O'Hare apart from introducing additional flights to three other destinations from June. These new routes are part of the Chicago-based carrier’s expansion drive. In fact, the airport at Chicago was the recipient of bulk of the 47 new round trips announced by the carrier in February.

Moreover, the carrier’s focus on the Chicago O’ Hare airport was evident from its investor presentation in Nov 2016 where it was described as “Well positioned geographically for connecting passengers’.

Responding to United Continental’s move to introduce new routes from O’Hare, American Airlines Group also came up with its own expansion plan at O’Hare barely, ten days later. The Fort Worth, TX-based carrier announced that it intends to add flights connecting the O’Hare airport to seven new U.S. mid-sized cities including the likes of Appleton, WI, Birmingham, AL, Boise, ID and Colorado Springs, CO from Jul 5. American Airlines is looking to add five new gates at O'Hare as part of its expansion efforts.

In fact, the competition between United Continental and American Airlines at O'Hare has gained pace after Scott Kirby became the president of United Continental last year. Kirby had moved to United Continental from American Airlines, where he served in similar capacity. The appointment was one of the several management changes at the airline, as it aims to improve its operational performance under Oscar Munoz.

The above announcements by the two major players at O'Hare highlights their efforts to fly to more regional cities where there’s less competition. Consequently, the ability to control prices is much more. Both carriers are aiming to attract more traffic through its hub airports like O’Hare, from smaller cities.

Price Performance

The efforts are bearing fruits as can be seen from United Continental’s price performance over the last six months. During the period, the stock has returned 33.4%, outperforming the Zacks categorized. Transportation-Airline industry which has gained 24% in the period. In contrast, the American Airlines stock increased only 17.2%, over the last six months.

 

Conclusion

Further, we note that the enhanced competition at O’Hare is good news for Chicago passengers. This is because enhanced competition might result in lower ticket prices. Consequently, we expect investor focus to remain on updates pertaining to this burning issue.

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