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Airline Stock Roundup: RYAAY's FY19 Profit View Cut, DAL's Traffic Report & More

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In the past week, Ryanair Holdings plc (RYAAY - Free Report) slashed its profit guidance (excluding Laudamotion) for fiscal 2019 (ending Mar 31, 2020) due to high fuel costs, labor strife, low fares and other headwinds. This Irish low-cost carrier also witnessed a 24-hour walkout on Sep 28, mainly by its cabin crew members in multiple countries across Europe. German pilots also went on strike on the same day. Consequently, travel plans of more than 40,000 passengers across Europe were thrown haywire.

Delta Air Lines, Inc. (DAL - Free Report) too featured in the news when it unveiled its September traffic report. Load factor (percentage of seats filled by passengers) declined in the month as capacity expansion outweighed traffic growth. Moreover, the company stated that Hurricane Florence is likely to hurt its third-quarter pre-tax income by approximately $30 million.

Meanwhile, JetBlue Airways Corporation (JBLU - Free Report) announced its intention to sell Basic Economy (cheapest) tickets from next year in a bid to stay afloat in the competitive airline space. Also, Southwest Airlines Co. (LUV - Free Report) extended its bookable flight schedule through Jun 8, 2019 as it aims to add new routes and resume some. Expansion-related updates from JetBlue and United Continental Holdings, Inc. (UAL - Free Report) too hit the headlines over the past five trading days.

(Read the last Airline Stock Roundup for Sep 27, 2018)

Recap of the Past Week’s Most Important Stories

1. Delta expects Hurricane Florence to weigh on its third-quarter unit revenues to the tune of roughly 0.5 points. Moreover, significant rise in fuel prices over the past 12 months are expected to limit bottom-line growth.  Despite high fuel costs, Delta expects adjusted total revenue per available seat miles (TRASM: a key measure of unit revenue) to increase year over year between 4% and 5% in the third quarter (the previous view had projected the metric to increase in the 3.5-5.5% band). Strong demand for air travel and improving yields contributed to the bullish forecast.

According to Delta, these favorable factors partially mitigated the adverse impact of sharp rise in fuel prices per gallon, which are expected to be between $2.22 and $2.27 in the third quarter. Adjusted pre-tax margin is anticipated to be approximately 13% (mid-point of the guided range in July). Non-fuel unit costs are anticipated to be roughly flat year over year.  The company envisions third-quarter earnings per share in the band of $1.70-$1.80 (the previous view had projected the metric in the $1.65-$1.85 range).

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

2. Joining the likes of Delta and American Airlines Group Inc. (AAL - Free Report) , JetBlue has decided to introduce a fare class that will offer the cheapest tickets starting next year. Passengers booking tickets under the fare class will naturally have fewer options than those opting for the regular economy tickets  (read more: JetBlue Follows Rivals to Offer Basic Economy Fares in 2019).

In a separate development, JetBlue announced plans to bump up its Palm Springs service with new nonstop flights to Boston. Additionally, the carrier will extend the duration of its current seasonal service to New York JFK (read more: JetBlue Boosts Palm Springs Service for Winter Travel).

3. In a customer-friendly move, Southwest Airlines intends to begin a new nonstop service between San Jose and El Paso on Sundays, effective Apr 14, 2019. Additionally, the airline will launch seasonal nonstop flights connecting Cleveland with Orlando, and Milwaukee with Fort Myers. The Saturday service will start on Oct 6. While the next day, the company will initiate flights connecting Oklahoma City and Nashville, Denver and El Paso plus Oakland and Tucson. These flights will be operational only on Sundays (read more: Southwest Airlines to Add Flights & Resume Few Services).

4. For fiscal 2019, beleaguered airline Ryanair Holdings expects profit after tax between €1.10 billion and €1.20 billion (the earlier guidance had projected the metric between €1.25 billion and €1.35 billion). Fuel bill is expected to be €460 million higher in fiscal 2019 compared with fiscal 2018 (the earlier guidance had projected a €430 million year-over-year increase). In the second half of fiscal 2019, air fares are expected to decline approximately 2% year over year. Traffic in the fiscal year is also likely to suffer due to the strikes. Winter capacity has too been trimmed by 1% due to the headwinds. Adding to the gloom, Ryanair stated that it might have to trim its fiscal 2019 outlook further in the event of more disruptions in the third quarter of fiscal 2019.

5. United Continental’s wholly owned subsidiary, United Airlines, announced plans to enhance travel experience for customers during the upcoming ski season. The carrier will be offering more than 100 flights with 10,000 plus seats daily to reach 12 top ski destinations across the United States (read more: United Continental Proposes More Flights for Ski Travel).

In a separate development, the carrier introduced additional flights on its transcontinental routes connecting New York/Newark with Los Angeles and San Francisco.

Price Performance

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

 

 

The table above shows that almost all airline stocks traded in the red over the past week leading to the NYSE ARCA Airline Index decreasing 4%. Over the course of six months, the sector tracker decreased 11.1% due to multiple headwinds including high fuel costs.

What's Next in the Airline Space?

September traffic reports from the likes of United Continental and Allegiant Travel Company (ALGT - Free Report) are expected in the coming days.

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