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Airline Stock Roundup: IATA Slashes '18 Profit View, LUV, DAL & More in Focus

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The past week was dominated by updates from the International Air Transport Association (“IATA”). The monthly data released by the IATA showcased a 6.2% year-over-year increase in demand for air travel across the globe for April 2018.

Another significant update from the trade association emerged recently, when it trimmed its 2018 profitability outlook for the airline industry to $33.8 billion from $38.4 billion anticipated earlier. Notably, high fuel costs were primarily responsible for the view cut. Bulk of the global profits ($15 billion) are expected to come from the North American region.

The IATA updates apart, the Atlanta, GA-based airline behemoth Delta Air Lines, Inc. (DAL - Free Report) was in the news by virtue of its May traffic report. In the month, load factor (% of seats filled by passengers) declined as traffic growth was outpaced by capacity expansion.

Meanwhile, Dallas-based Southwest Airlines Co. (LUV - Free Report) continues to feel the pinch of the deadly accident on its flight in April, which claimed one life. Due to low ticket sales as a result of the accident apart from the spike in oil prices, this low-cost carrier issued a second-quarter unit revenue view, which was at the lower end of its previous forecast. Operating revenue per available seat mile (RASM) is anticipated to decline around 3% year over year (the earlier guidance had called for a decline in the 1-3% range).

Furthermore, JetBlue Airways Corp. (JBLU - Free Report) joined fellow-carriers like American Airlines Group Inc. (AAL - Free Report) in revamping its policy pertaining to emotional support animals on its flights.

Transportation - Airline Industry 5YR % Return

 

Transportation - Airline Industry 5YR % Return

(Read the last Airline Stock Roundup for May 30, 2018).

Recap of the Past Week’s Most Important Stories

1. At its 74th Annual General Meeting in Sydney, Australia, the IATA stated that due to rising fuel costs and other factors like the ongoing geopolitical tensions, airline companies are expected to be less profitable in 2018 than previously anticipated. Global net profit margin is expected to contract to 4.1% in 2018 from 5% a year ago. However, the top line is projected to increase 10.7% on the back of higher passenger and cargo revenues.

Even though, passenger air travel growth in 2018 (7%) is anticipated to be slower than the phenomenal 8.1% growth witnessed last year, it compares favorably to the 20-year average growth rate (Read more: IATA Trims 2018 Airlines Profit Forecast Due to High Costs).

Earlier in the week, IATA also released its global traffic numbers for April. Although global travel demand (measured in revenue passenger kilometers or RPKs) increased year over year, the metric compared unfavorably to the March reading when traffic expanded 9.7% — the highest growth rate in 12 months. With fuel costs on the rise, air fares are likely to increase in the remainder of the year.

On a year-over-year basis, traffic growth was evident in both international (4.8%) and domestic (8.5%) markets, which resulted in a rise in the overall figure. Total capacity ((available seat kilometers or ASKs) increased 5.9% in the month. Load factor also improved 20 basis points to 82.3% owing to higher traffic growth. In fact, the reading on load factor was a record as far as the month of April was concerned.

2. At Delta, consolidated traffic, measured in revenue passenger miles (RPMs), came in at 19.69 billion, up 2.9% year over year. Consolidated capacity (or available seat miles/ASMs) climbed 3.5% to 22.83 billion on a year-over-year basis (Read more: Delta May Traffic Shows a Rise, Load Factor Drops).

Meanwhile, Delta and Korean Air extended their codeshare agreement on flights in the United States as both the companies aim to boost traffic in the highly lucrative trans-Pacific market. This customer-friendly move followed the launch of a joint venture partnership between the two earlier this year. A codeshare deal allows sharing of flights, which implies that a passenger has the free will to avail any flight operated by either of the companies under the agreement, irrespective of the flight number.

Delta carries a Zacks Rank #3 (Hold). However, you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3. Southwest Airlines trimmed its capacity outlooks for second-quarter and full-year 2018 due to increasing fuel prices. The company now anticipates second-quarter available seat mile (ASM) or capacity to rise approximately 3.5%. Earlier, it had called for 3.5-4% growth in the metric. Also, for the latter half of the year, ASM is anticipated to expand approximately 6% year over year, lower than its earlier view of a rise in the low 7% range (read more: Southwest Trims View on Soft Bookings & Spike in Oil Prices).

4. Ireland-based Ryanair Holdings plc (RYAAY - Free Report) reported solid traffic data for May, courtesy of low air ticket prices. The carrier’s traffic improved 6% year over year in the month. Load factor (percentage of seats filled by passengers) rose to 96% from 95% a year ago on the back of decline in air ticket prices. The impressive traffic figures came despite the carrier having to cancel more than 1,100 flights in May due to staff shortages, inclement weather and other factors.

5. From Jul 1, passengers will only be allowed to carry cats, dogs and miniature horses as emotional support animals on JetBlue flights. As part of tightening its policy, this low-cost carrier will ask the relevant passengers to provide extensive documentation pertaining to the animal’s health and behavior.

In addition, the person has to provide proof related to its vaccinations and other factors within 48 hours before the flight. Under the stricter rules, the concerned passenger will also have to sign a document taking full responsibility for any injury caused by the animal he/she is carrying on the flight.

Price 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

-0.9%

-9.9%

UAL

-0.9%

-1.7%

GOL

-1.1%

-25.5%

DAL

0.6%

-1.5%

JBLU

-0.8%

-3.7%

AAL

1.7%

-14.8%

SAVE

0.9%

-3.8%

LUV

-0.7%

-4.5%

CPA

-2.4%

-4.8%

ALK

1.1%

6.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that most airline stocks traded in the red over the past week, leading to the NYSE ARCA Airline Index depreciating almost 1% in the period. Over the course of the last six months, the sector tracker has lost more than 5% of its value mainly due to high fuel costs and other headwinds. Shares of GOL Linhas Aéreas Inteligentes S.A. (GOL - Free Report) have declined the most (25.5%) in the period.

What's Next in the Airline Space?

We expect May traffic reports from the likes of United Continental Holdings, Inc. (UAL - Free Report) in the coming days.

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