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Airline Stock Roundup: ALK & JBLU Q1 RASM Views Cut, Boeing 737 Max Fleet in Focus

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In the past week, U.S.-based carriers Alaska Air Group (ALK - Free Report) and JetBlue Airways (JBLU - Free Report) lowered respective projections for first-quarter 2019 revenue per available seat mile (RASM: a key unit revenue measure). The airlines cited weak pricing for last-minute bookings on transcontinental flights as the main reason for the guidance revision.

Additionally, carriers like Southwest Airlines (LUV - Free Report) and GOL Linhas (GOL - Free Report) were in focus during the week, albeit for wrong reasons. These carriers have Boeing 737 Max 8 planes in the fleet. However, following the tragic crash of a Boeing 737 Max 8 aircraft on Mar 10 in Ethiopia, countries across the globe have grounded the aircraft. In fact, the Ethiopian flight mishap marks the second such incident involving this model of The Boeing Company (BA - Free Report) in less than six months.

The past week also saw carriers like Hawaiian Holdings’ (HA - Free Report) wholly owned subsidiary Hawaiian Airlines, JetBlue Airways, SkyWest (SKYW - Free Report) , and GOL Linhas reporting respective traffic numbers for February. While load factor (% of seats filled by passengers) declined at Hawaiian Airlines, JetBlue Airways and SkyWest due to capacity expansion outweighing traffic growth, the metric increased at GOL Linhas as the converse was true.

(Read the last Airline Stock Roundup for Mar 06, 2019).

Recap of the Past Week’s Most Important Stories

1. Alaska Air now expects current-quarter RASM to inch up between 1% and 2% on a year-over-year basis. The previous forecast on Feb 19, 2019 projected the metric to increase in the 2.5-4.5% range. JetBlue, which initially anticipated first-quarter RASM to either dip 2% or rise up to 1%, now predicts the metric to slip in the 1.5-3.5% band. To combat the near-term RASM softness, the carrier trimmed its 2019 capacity growth estimate. JetBlue now envisions current-year capacity to expand in the 4.5-6.5% range (previous projection hinted at 5-7% capacity growth). However, the RASM dullness is likely to die down during the second and third quarter of 2019. Demand for air travel is likely to pick up its pace in the peak summer season, thereby lending an impetus to RASM. (Read more: Alaska Air Lowers Q1 RASM View Mainly Due to Weak Pricing).

In a separate development, February load factor contracted 110 basis points at JetBlue to 81.5% as capacity growth (7.5%) outshined traffic rise (6%).

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

2. Amid growing concerns over the possible perils associated with flying in Boeing's 737 Max 8 aircraft, President Donald Trump issued an executive order for grounding all Boeing 737 Max 8 and Max 9 jets in the United States. Following Trump’s order to ground Boeing’s 737 Max fleet, confusion pertaining to flight cancellations and rebookings is likely to prevail in the airline space. In fact, as part of the intensifying backlash, an array of regulatory authorities across the globe grounded the 737 Max aircraft.

3. At Hawaiian Airlines, traffic (measured in Revenue Passenger Miles or RPMs) grew 2.3% to 1.26 billion in February.  Available Seat Miles (ASMs) climbed 2.8% to 1.49 billion in the period. Load factor declined 30 basis points to 84.5%. (Read more: Hawaiian Airlines Posts Dismal February Traffic Statistics).

4. SkyWest reported a year-over-year increase in block hours (a measure of aircraft utilization). Notably, this key metric improved 6.1% (6,206) to 107,300 in February 2019. The addition of the new E175 jet to this regional carrier’s fleet since last February led to this upside. Last month, SkyWest’s dual class fleet (E175, CRJ900 and CRJ700) accounted for 65.8% of the carrier’s total block-hour production compared with approximately 58.8% a year ago. (Read more: SkyWest's February Block Hours Rise, Load Factor Falls).

5. At GOL Linhas, traffic ascended 8.4% to 3.18 billion. On a year-over-year basis, consolidated capacity was also up 4.5% to 3.92 billion, primarily on 23.8% expansion in international capacity. Moreover, the carrier witnessed 11.5% higher passenger count in February. Further, load factor increased to 81.1% from 78.2% a year ago. (Read more: GOL Linhas' Traffic & Load Factor Rise in February).

 Performance

The following table shows the price movement of the major airline players over the past week and during the last 6 months.

 

 

The table above shows that most airline stocks traded in the green over the past week. Evidently, the NYSE ARCA Airline index increased 3.3% to $99.46 in the period. Over the course of six months, the NYSE ARCA Airline index has appreciated 9.4%.

What's Next in the Airline Space?

Apart from the usual news updates in this space, investors will be focusing on further news regarding Boeing 737 Max jets.

 

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