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Airline Stock Roundup: AAL & LUV Extend 737 MAX Grounding Period, AZUL in Focus

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Last week, both American Airlines (AAL - Free Report) and Southwest Airlines (LUV - Free Report) extended the grounding period of Boeing 737 Max jets in respective fleets. Currently, the former and the latter have 24 and 34 such jets each.

On the traffic front, Hawaiian Airlines, the wholly-owned subsidiary of Hawaiian Holdings (HA - Free Report) , and Azul (AZUL - Free Report) posted respective traffic numbers for October. Load factor (% of seats filled by passengers) increased at both carriers as traffic growth outpaced capacity expansion.

In terms of quarterly performance, Azul delivered better-than-expected third-quarter 2019 earnings per ADS. The bottom line also improved on a year-over-year basis, mainly owing to this Latin American carrier’s cost-control efforts apart from the decline in fuel expenses.

(Read the last Airline Stock Roundup here).

Recap of Last Week’s Most Important Stories

1. Updates on Boeing 737 MAX jets have been flooding the aviation space ever since the deadly Ethiopian Airlines’ crash on Mar 10, 2019 happened. In fact, this was the second accident involving Boeing 737 MAX jets within a span of five months. Sadly enough, in October 2018, the same model had crashed in Indonesia, killing 189 people aboard.

Latest news from American Airlines is that it suspended operations of its Boeing 737 Max jets until Mar 4, 2020, extending the grounding period from the previously announced Jan 16 deadline. Southwest Airlines too expects 737 MAX jets in its fleet to remain grounded through Mar 6, 2020 as opposed to Feb 8, expected earlier. The extension of grounding period by these carriers might induce wider loss of revenues due to more flight cancellations.

2. At Hawaiian Airlines, October traffic (measured in Revenue Passenger Miles or RPMs) increased 5% to 1.53 billion. Capacity (measured in Available Seat Miles or ASMs) also inched up 2.1% to 1.74 billion in the period. Additionally, load factor improved 240 basis points (bps) to 88%. During the first 10 months of 2019, the carrier registered a 3.1% rise in RPMs while ASMs increased 1.6%. (Read more: Hawaiian Airlines' Traffic & Load Factor Rise in October).

3. October traffic at Azul surged 36.3% year over year owing to 40.1% growth on the domestic front and a 23.3% improvement, internationally. Further, on a year-over-year basis, consolidated capacity expanded 33.3%, driven by 36.3% and 22.6% increase in domestic and international capacity, respectively. (Read more: Azul's October Traffic & Load Factor Up on Solid Demand).

Azul’s third-quarter 2019 earnings per ADS (excluding $1.83 from non-recurring items) of 92 cents beat the Zacks Consensus Estimate of 61 cents. Moreover, the bottom line compared favorably with the year-ago figure of 25 cents. Additionally, operating revenues in the quarter ascended in double digits year over year to $764.6 million owing to the company’s cost-control initiatives. However, the top line fell short of the Zacks Consensus Estimate of $790.7 million. Meanwhile, passenger revenues, accounting for bulk (95.3%) of the top line, rose 24.9% year over year. Also, cargo revenues surged 42% in the reported quarter, mainly on e-commerce growth. (Read more: Azul Q3 Earnings Surpass Estimates, Increase Y/Y).

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

4. The International Air Transport Association (IATA) announced that global travel demand (measured in revenue passenger kilometers or RPKs) for September was flat sequentially. However, the measure improved 3.8% on a year-over-year basis. Capacity (measured in available seat kilometers or ASKs) also increased 3.3% year over year. Load factor too inched up 0.4 percentage points to 81.9%. Notably, the load factor reading marked a record figure for any September.

5 International Consolidated Airlines Group (ICAGY - Free Report) , the parent company of British Airways and Iberia, announced that consolidated traffic (measured in revenue passenger kilometers or RPKs) for October improved 4.8% year over year. Moreover, consolidated capacity (measured in available seat kilometers or ASKs) climbed 2.7% year over year. Load factor also improved to 85% from 83.3% a year ago as traffic growth outpaced capacity expansion. Notably, load factor expanded to 84.7% in the first 10 months of 2019 from 83.9% in the corresponding quarter of 2018.

Performance

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

The table above shows that majority of airline stocks traded in the green over the last week even though the gains were muted in nature. The NYSE ARCA Airline Index declined marginally to $110.77 in the period. Over the course of the past six months, the index has dipped almost 1%.

What's Next in the Airline Space?

Investors will keenly await the third-quarter 2019 earnings report of Copa Holdings (CPA - Free Report) and LATAM Airlines (LTM - Free Report) on Nov 13.

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