In the past week, premier trade organization — Airlines for America (‘A4A’) – issued a bullish forecast for U.S. carriers. These companies are expected to draw substantial traffic this spring (Mar 1– Apr 30). The projection mirrors a 4.3% increase in passengers flying to various destinations over the period compared with last year.
On the flip side, Southwest Airlines (LUV - Free Report) provided a downbeat guidance for the first quarter of 2019. Notably, factors like weather-related disturbances, unscheduled maintenance disruptions due to negotiations with the Aircraft Mechanics Fraternal Association (“AMFA”) as well as the Boeing 737 MAX 8 groundings were the primary reasons behind the drab view. In the meantime, American Airlines (AAL - Free Report) stated that it was unable to provide an estimate of the costs associated with the grounding of its 737 MAX fleet.
Also, Delta Air Lines (DAL - Free Report) featured in the headlines by virtue of its announcement to boost capacity on the Atlanta-San Juan route to meet the surge in demand during the peak winter holiday season.
(Read the last Airline Stock Roundup here).
Recap of the Past Week’s Most Important Stories
1. According to the forecast put forward by A4A, passengers traveling on U.S. airlines during the spring travel period this year will reach an all-time high of 158.2 million. Notably, 151.7 million people chose to travel by air in the same period last year. The forecast translates into 2.59 million fliers per day during the abovementioned period. To meet the surge in travel demand, U.S. carriers are increasing the number of available seats by 129,000 per day. (Read more: Busiest Spring Season in the Cards for U.S. Airlines Per A4A).
2. Due to multiple headwinds, Southwest Airlines expects approximately 9,400 flight cancellations since mid-February through Mar 31, 2019. As a result, first-quarter capacity (available seat mile or ASM) is now anticipated to increase approximately 1% year over year compared with a 3.5-4% rise projected earlier.
Earlier, Southwest had expected a negative revenue impact of $60 million for first-quarter 2019 on softness in bookings due to the government shutdown. However, the company continued to experience low demand and yields ever since the government shutdown. Revenues were further impacted by bad weather conditions, maintenance disruptions and the MAX 8 groundings. Consequently, the metric is now expected to be hurt to the tune of $150 million. Additionally, first-quarter operating revenue per ASM (RASM) is now predicted to increase 2-3% year over year compared with 3-4% growth anticipated earlier.
As a result of the flight cancellations, first-quarter non-fuel unit costs are expected to increase around 10% year over year. Previously, the same was estimated to increase 6%. Moreover, the company’s recent agreement in principle with AMFA is estimated to add approximately $30 million to costs associated with salaries, wages, and benefits in the first quarter. Additionally, fuel costs are estimated to be approximately $2.05 per gallon for the first quarter (past forecast was in the $2-$2.05 band).
3. American Airlines acknowledged significant disruptions in its operations and associated financial damages due to the Federal Aviation Administration’s (FAA) decision to ground all U.S.-registered Boeing 737 MAX jets. Due to the grounding of the above-mentioned planes, American Airlines, which currently has 24 such jets in its fleet, is canceling 90 flights per day. Also, the carrier extended cancellations of the Boeing 737 MAX jets through Apr 24, assuming their non-availability till that date.
American Airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
4. Inflow of visitors to Puerto Rico are expected to increase significantly during the winter holiday season. In bid to cope with the passenger rush, Delta has decided to operate one of its four daily flights on the Atlanta-San Juan route with an Airbus A330-300 aircraft that accommodates more passengers. Given the presence of multiple festivities like the San Sebastian Street festival, travelers throng into San Juan during the period. Naturally, upgauging the planes on the route is a logical step.
5. Ryanair Holdings (RYAAY - Free Report) , which has been plagued with labor unrest for quite some time, received encouraging tidings on the labor front. According to an Associated Press report, the European low-cost carrier and a German union representing around 1,100 of its cabin crew inked a deal pertaining to wage hikes and working conditions.
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 all airline stocks, barring Hawaiian Holdings (HA - Free Report) , have shed value in the past week. Consequently, the NYSE ARCA Airline index declined 1.2% in the same period. Over the course of six months, the NYSE ARCA Airline index appreciated 3.4%. Shares of GOL Linhas Aéreas Inteligentes (GOL - Free Report) appreciated the most in the period (19.1%).
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