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Airline Stock Roundup: American Airlines, United Continental Give Bullish Q3 Views; GOL in Focus

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The past week saw airline heavyweights American Airlines Group (AAL - Free Report) and United Continental Holdings (UAL - Free Report) revealing bullish views on unit revenues for the third quarter of 2017. The upbeat views impacted the stocks positively. Latin American carrier Gol Linhas Aereas Inteligentes S.A.(GOL - Free Report) also grabbed headlines as it provided encouraging third-quarter guidance.

Meanwhile, Low-cost carrier Southwest Airlines Co. (LUV - Free Report) reported disappointing traffic data for the month of September. Load factor (percentage of seats filled by passengers) declined as traffic contraction was greater than that of capacity leading to empty planes.  Conversely, Hawaiian Holdings’ (HA - Free Report) wholly owned subsidiary Hawaiian Airlines, reported impressive traffic data for the month of September.

On the price front, the NYSE ARCA Airline Index gained 5% to $112.1 in the past week driven by the bullish views of American Airlines and United Continental.

Transportation - Airline Industry 5YR % Return

 

Transportation - Airline Industry 5YR % Return

 

(Read the last Airline Stock Roundup for Oct 04, 2017).

Recap of the Past Week’s Most Important Stories

1. Southwest Airlines reported disappointing traffic numbers for September. Revenue Passenger Miles (RPMs) — a measure of air traffic — declined 4.5% year over year to 9.5 billion in the month. Meanwhile Available Seat Miles (ASMs) — a measure of capacity —decreased 1.6% to 11.61 billion. (read more: Southwest Airlines' September Traffic, Load Factor Fall)

2. Gol Linhas anticipates third-quarter operating margin in the range of 12-12.5%, up approximately 3% year over year. This metric (excluding non-recurring expenses) was 9.1% in the comparable quarter previous year. GOL expects third-quarter unit revenue (RASK) to increase in the 8.5-9% band. (read more: Gol Linhas Buoys Investors' Hope With Boosted Q3 View)

This Zacks Rank #3 (Hold) carrier also revealed traffic data for September. Consolidated traffic — measured in revenue passenger kilometers (RPK) — increased 5% year over year to 2.99 billion in September. International and domestic RPK in the reported month grew 13.1% and 4.1%, respectively. 

Consolidated capacity (or available seat kilometers/ASKs) improved 2% to 3.73 billion. Load factor improved 230 basis points to 80.2% in the month as traffic growth outpaced capacity expansion in the month. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3. At Hawaiian Airlines revenue passenger miles (RPMs), a measure of traffic, increased 6.3% to 1.37 billion in September on a year-over-year basis.Load factor increased 160 basis points as traffic growth outpaced capacity expansion (4.3%) for the month.The carrier now anticipates third-quarter economic fuel cost per gallon between $1.65 and $1.75 (previous guidance had estimated the metric between $1.55 and $1.65). (read more: Hawaiian Holdings Arm Unveils Robust September Traffic Data)

4. United Continental unveiled an improved guidance for the third quarter of 2017, results of which will be out on Oct 18. The carrier now expects passenger revenue per available seat mile (PRASM: a key measure of unit revenue) to decline between 3.5% and 4%, better than the previous view of a fall in the range of 3-5%. Meanwhile, it expects pre-tax margin to vary between 10% and 10.5% (previous projection had called for the metric to be in the band of 8-10%).

Fuel price per gallon is expected at $1.70 per gallon. Cost per available seat miles, excluding fuel, profit-sharing, third-party business expenses and other special items are now estimated to increase between 2.5% and 3% (earlier outlook had called for a rise of 2.5-3.5%). The Chicago-based company now anticipates capacity to increase 3% year over year. Previous guidance had called for a rise of 3-3.5% in the metric.

However, the company’s September traffic was hurt by the back-to-back natural calamities. RPM declined 1.6%, while ASM improved 1.7%. Load factor declined 270 basis points to 80.5% as traffic declined while capacity expanded.

5. American Airlines expects total revenue per available seat mile (TRASM) for the third quarter to grow between 0.5% and 1.5% (old guidance: flat to up 1%). The raised guidance is primarily based on higher yields. It now expects pre-tax margin, excluding special items, in the range of 9-11% (previous guidance: 8.5% to 10.5%).

Cost per available seat miles, excluding special items is estimated to increase at approximately 4.5% in the third quarter owing to salary and benefit increases to employees. Fuel price per gallon is anticipated between $1.64 and $1.69 in the quarter.

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

7.9%

-15.9%

UAL

5.6%

-5.3%

GOL

6.4%

58.6%

DAL

9.3%

17.2%

JBLU

9.2%

-4.8%

AAL

11.7%

25.3%

SAVE

4.8%

-32.5%

LUV

3.6%

7%

CPA

4.6%

14.6%

ALK

5.8%

-9.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that all airline stocks traded in the green in the past week leading to the NYSE ARCA Airline Index’s significant increase. In the longer-term, over the last six months, the sector tracker appreciated 2% on the back of impressive gains at GOL Linhas, American Airlines and Copa Holdings (CPA - Free Report) . Spirit Airlines (SAVE - Free Report) was the major laggard during this period, experiencing a price decline of 32.5%.

What's Next in the Airline Space?

Investors will keenly await third-quarter earnings reports from the likes of United Continental in the coming days.

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