The New Year brought favorable tidings to the employees of airline heavyweights, American Airlines Group (AAL - Free Report) and Southwest Airlines (LUV - Free Report) , as the carriers announced bonuses worth $1,000 per member, following the tax overhaul. Notably, the $1.5 trillion tax overhaul package signed into law by President Trump reduces corporate taxes from 35% to 21%.
European low-cost carrier, Ryanair Holdings (RYAAY - Free Report) , also grabbed headlines when it released impressive traffic data for December, 2017. The carrier is benefitting from low air fares and expects it to be even lower in the current year.
Meanwhile, issues related to passengers continued to haunt U.S. carriers. Alaska Airlines, the wholly-owned subsidiary of Alaska Air Group (ALK - Free Report) , was the latest sufferer in this regard when it was reportedly sued by the family of an elderly lady. The lady died last year following a fall in an escalator at the Portland Airport, Oregon.
(Read the last Airline Stock Roundup for Dec 27, 2017).
Recap of the Past Week’s Most Important Stories
1. Ryanair reported a 3% year over year rise in traffic to 9.3 million for December owing to cheap ticket prices. Another important metric, load factor (percentage of seats filled by passengers) improved 1% to 95% as traffic growth outpaced capacity expansion in the same month. In fact, low air fares helped the carrier record a 10% rise in 2017 traffic to 129 million.
2. The tax overhaul is expected to aid airlines significantly. Buoyed by the new tax laws, American Airlines and Southwest Airlines declared bonuses for their respective employees. American Airlines will pay the amount (totaling $130 million) to each of its employee, excluding officers, by Mar 31, 2018. Meanwhile, Southwest will distribute the cash bonus on Jan 8.
Apart from the huge drop in corporate tax rate, the fact that the new laws allow companies to deduct their capital expenditures from taxable income immediately has proved to be favorable for airlines as they will be able to invest toward capital expenditure considerably. As a result, their tax bills for the year would be lowered significantly due to higher deductions. This, in turn, will leave more cash in the hands of these companies to fund their capital expenditures, acquisitions and share repurchases, among others. In this regard, Southwest announced that it will invest significantly toward fleet modernization. In fact, this low-cost carrier converted options on 40 Boeing Max 8s to firm orders. The company also deferred orders for 23 737 Max 7 planes of Boeing until 2023/2024.
Following the tax overhaul, Southwest expects to record a non-cash credit in the range of $1 billion to $1.5 billion in the fourth quarter of 2017. Economic fuel cost per gallon is anticipated in the band of $2-$2.15 in the same quarter.
3. The family of a 75- year old lady, reportedly sued Alaska Airlines and the concerned wheelchair contractor following her death after being injured. Apparently, she arrived in Portland after holidaying in Maui. At the airport, she slipped down an escalator. The family has lodged a complaint pertaining to wrongful death against the concerned parties. Currently, Alaska Air Group carries a Zacks Rank # 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
4. According to a Reuters report, El Al Airlines of Israel intends to operate non-stop flights (thrice a week) connecting Tel Aviv and San Francisco by Dec 31, 2018 as part of its efforts to expand in North America. The carrier will utilize Boeing 787 Dreamliner planes for flights on the route. This Israel-based carrier will compete with United Continental Holdings (UAL - Free Report) on the route, per the report.
The following table shows the price movement of the major airline players over the past week and during the last six months
The table above shows that most airline stocks traded in the green over the past week. Consequently, the NYSE ARCA Airline index increased 0.5% to $118.51 in the period. Over the course of six months, the NYSE ARCA Airline index appreciated 3.1%.
What's Next in the Airline Space?
Investors will await December traffic reports from the likes of Allegiant Travel Company (ALGT - Free Report) and Hawaiian Holdings (HA - Free Report) in the coming days.
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