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In the past week, airline behemoth Delta Air Lines (DAL - Free Report) issued a bleak outlook with respect to passenger unit revenue and operating margin for the third quarter of 2017. Spirit Airlines (SAVE - Free Report) also unveiled a bearish current-quarter view with respect to total revenue per available seat mile (TRASM: a key measure of unit revenue) mainly due to the disruptions induced by Harvey.

Additionally, Ryanair Holdings (RYAAY - Free Report) unveiled its London schedule for the summer of 2018 in the same period. The Irish carrier, however, reiterated its Brexit-related fears.

The week also saw a customer-friendly announcement from Alaska Air Group’s (ALK - Free Report) subsidiary, Alaska Airlines, because the company aims to form a codeshare agreement with Singapore Airlines.

As if the disruptions caused by Harvey were not enough, Hurricane Irma has offered a fresh challenge to the airline companies. In fact, this latest natural calamity already resulted in cancellation of multiple flights to Caribbean cities.

On the price front, the NYSE ARCA Airline Index declined almost 1% at $105.06 over the past week, which was a day short on trading owing to the Labor Day holiday on Sep 4.

Transportation - Airline Industry 5YR % Return

 

Transportation - Airline Industry 5YR % Return

 

(Read the last Airline Stock Roundup for Aug 30, 2017).

Recap of the Past Week’s Most Important Stories

1. Ryanair Holdings unveiled a busy London schedule for the summer of 2018, even as it reiterated Brexit-related fears. The schedule announced by the low-cost carrier features a record 68 routes. The carrier aims to transport 24.8 million customers from the three London airports — Stansted, Gatwick and Luton (read more: Ryanair Issues 2018 London Summer Roster Amid Brexit Fears).

Meanwhile, the carrier also unveiled impressive traffic numbers for August. Traffic climbed 10% and load factor (% of seats filled by passengers) improved 1% to 97% on the back of lower air ticket prices.

Currently, Ryanair holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. Spirit Airlines expects its top line to decline to the tune of approximately $8.5 million in the third quarter due to Harvey. This view takes into account the multiple flights cancelled by the company as well as the continued soft demand for air travel to and from the affected areas due to the natural calamity.

In the current quarter, the company anticipates TRASM to decline between 7% and 8.5% (the previous guidance had called for a decline in the band of 2% and 4%). In fact, per the company, 100 basis points of the trimmed guidance can be attributed to the negative impact of Harvey. Also, aggressive competitive pricing in its key markets contributed to the bleak forecast.

On a brighter note, the company revised its unit cost (non-fuel) guidance for the current-quarter favorably owing to better operational performance. Spirit Airlines now expects adjusted cost per available seat miles (CASM ex-fuel) to decline between 2% and 3% on a year-over-year basis (the previous guidance had projected the metric in the band of -1% and +1%).

3. Delta reported a 6.9% rise in air traffic for August, while capacity expanded 2.7% for the month. Meanwhile, load factor increased 350 basis points to 87.9%.

However, the carrier has lowered guidance for the third quarter of 2017 citing reasons like higher fuel costs and soft yields. Delta now anticipates passenger unit revenue for the said quarter to increase in the band of 2-3%. Previous guidance had called for an increase in the 2.5-4.5% range. Operating margin is expected to improve in the range of 16.5-17.5% from the former 18-20% band. The airline, however, raised its outlook for fuel prices per gallon from $1.68 to $1.73 from the earlier $1.55 to $1.60 band. The uptick was driven by an increase in market price that began in late July.

4.  Alaska Airlines stated that from Sep 27, members of Alaska Mileage Plan and Singapore Airlines KrisFlyer loyalty programs will begin earning miles on the flights. Additionally, the carriers will form a codeshare partnership, subject to government approval. Notably, a codeshare deal allows sharing of flights. This implies that a passenger can avail any flight operated by either of the companies covered under the agreement, irrespective of the flight number (read more: Alaska Air Group Arm-Singapore Airlines Deal to Aid Flyers).

Performance

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

Company

Past Week

Last 6 months

HA

-0.5%

-16.2%

UAL

-6.7%

-16.2%

GOL

17%

37%

DAL

-3.3%

-6.2%

JBLU

-1.3%

-5.6%

AAL

-3.5%

-3.1%

SAVE

-13.1%

-39.4%

LUV

-0.2%

-10%

CPA

6.5%

22.5%

ALK

-2.2%

-22.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that all airline stocks barring GOL Linhas (GOL - Free Report) and Copa Holdings traded in the red in the past week mainly due to the bearish events mentioned above. Over the last six months, the sector tracker lost 1.8% due to multiple headwinds like capacity woes, Spain attacks and Harvey. Shares of Spirit Airlines depreciated the most (39.4%) during the period.

What's Next in the Airline Space?

The coming week will see Aug traffic reports from major players in the airline sector like Southwest Airlines (LUV - Free Report) and Hawaiian Holdings (HA - Free Report) . Investors will also await updates on the impact of Irma on airline operations.


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