Airline Stock Roundup: Southwest Pilots to Vote on Pay, United Airlines Extends Credit Card Ties
The past week saw a couple of news updates from the Dallas, TX-based low-cost carrier Southwest Airlines Co. LUV. On the labor front, it was announced that its pilots will vote on the tentative contract pertaining to their pay raise and retirement benefits among other things. The carrier also stated during the week that it expects its average fuel cost in the current quarter to fall 24.5% on a year-over-year basis to $2.22 per gallon.
United Airlines – the wholly owned subsidiary of United Continental Holdings Inc. UAL – also grabbed headlines following the extension of its credit card deal with Visa and JPMorgan Chase.
At American Airlines Group AAL, a computer failure resulted in flights being affected, thereby causing harassments to its customers. The Fort Worth, TX-based carrier subsequently resolved the issue. In a more customer-friendly development, the Bureau of Labor Statistics revealed that the 3.1% reduction in average airfare in August marked the second successive month of such decline.
On the price front, the NYSE ARCA Airline index declined 2.9%. Markets have been highly volatile following the U.S. Federal Reserve’s decision to keep the key rates unchanged.
(Read the last Airline Stock Roundup for Sep 16, 2015).
Recap of the Past Week’s Most Important Stories
1. The board of directors of the Southwest Airlines Pilots’ Association (SWAPA) decided that the pilots themselves will take the final call on their future pay by voting on the tentative contract later this year. The contract, if accepted, will ensure that their wage is in line with that of pilots of other major carriers. Apart from the pay raise, the deal also contains clauses on retirement benefits as well as provisions to improve the working conditions for pilots (read more: Will Southwest Airlines' Pilots Get Higher Pay?).
Southwest Airlines, like other carriers, is benefiting from low oil prices. The carrier stated that economic fuel costs are anticipated to decline approximately $1.3 billion in 2015 compared with the 2014 levels, thereby resulting in significant savings. The low-cost carrier further stated that it has shelled out $1.3 billion to its stockholders so far this year through share repurchases and dividend payments (read more: Southwest Airlines Sees 24.5% Y/Y Drop in Q3 Fuel Costs).
2. Data released by the Bureau of Labor Statistics suggest that average airfares in the U.S. for Aug 2015 declined 3.1% on a seasonally adjusted basis over the preceding month. The decrease is not as steep as the 5.6% decline witnessed in Jul 2015. This decline marked the sharpest monthly drop since Dec 1995 (read more: Airline Fares Turn Pocket-Friendly: 3 Stocks to Buy).
3. Technical glitches are continuing to haunt airline stocks. The latest instance was when several flights of American Airlines experienced significant delays due to a software glitch. American Airlines flights had then been grounded in Dallas, Chicago and Miami airports for almost two hours following a technical problem (read more: American Airlines Flights Grounded on Technical Concerns).
4. In a customer friendly move, United Airlines extended its credit card deal related to MileagePlus Loyalty program agreements with Visa and JPMorgan Chase. Consequently, the carrier expects its operating revenues in the second half of the year to be boosted to the tune of approximately $200 million (read more: United Airlines Rallies on MileagePlus Loyalty Deal Extensions).
5. Employees at airline behemoth, Delta Air Lines DAL are on cloud nine following the announcement that the base pay for most employees will see a hike of 14.5% (effective Dec. 1) in addition to the carrier’s lucrative profit sharing plan, which has been tweaked slightly for payouts from 2017 onward. Delta is seeing record profits on the back of weak fuel prices and employees are also reaping rewards.
The annual pay of employees was already hiked in April this year. Coupled with the latest increase, the pay rates of most employees in 2015 would see a minimum improvement of 18% on a year-over-year basis. Delta also said that it intends to increase its 401(k) contribution match by 1% to 6 % beginning Jan. 1.
6. Hawaiian Holdings HA, the parent company of Hawaiian Airlines, unveiled projections for the current quarter as well as for full-year 2015 at the Imperial Capital Global Opportunities Conference. The carrier expects cost per available seat mile (ASM) (excluding fuel) in the third quarter to increase in the band of 2.5% to 5.5% year over year. Capacity is projected to increase in the band of 3% to 5%.
However, operating revenue per ASM in the third quarter is projected to decline in the range of 4% to 7%. Fuel price (economic) per gallon in the current quarter is expected at $2 to $2.1, representing a significant decline from $3.10 recorded in the third quarter of 2014.
Capacity for 2015 is also expected to increase 3% to 5% from the 2014 levels. Fuel price (economic) per gallon in 2015 is expected in the band of $2.05 to $2.15, representing a significant decline from $3.03 recorded in 2014.
Performance
The following table shows the price movement of the major airline players over the past week and during the last 6 months.
Company | Past Week | Last 6 months |
HA | -2.84% | 18.54% |
UAL | 2.14% | -13.86% |
GOL | -19.29% | -68.71% |
DAL | -1.17% | -0.26% |
JBLU | -0.27% | 35.49% |
AAL | -3.84% | -24.28% |
SAVE | 0.71% | -36.30% |
LUV | -1.70% | -15.85% |
CPA | -1.30% | -57.46% |
ALK | -1.37% | 16.54% |
As seen in the chart above, major airline stocks traded in the red over the past week. Moreover, most of the stocks also lost value over the last six months with Latin American carriers GOL Linhas GOL and Copa Holdings CPA declining the most.
What's Next in the Airline Biz?
Investors will keenly await the outcome of talks in Havana between government officials of the U.S. and Cuba on the normalization of airline service between the two countries. As per a Reuters report, the talks are scheduled for Sep 28–29. Price movement of airline stocks will also be in focus given the recent volatility in oil price.
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SOUTHWEST AIR (LUV): Free Stock Analysis Report
GOL LINHAS-ADR (GOL): Free Stock Analysis Report
DELTA AIR LINES (DAL): Free Stock Analysis Report
UNITED CONT HLD (UAL): Free Stock Analysis Report
COPA HLDGS SA-A (CPA): Free Stock Analysis Report
HAWAIIAN HLDGS (HA): Free Stock Analysis Report
AMER AIRLINES (AAL): Free Stock Analysis Report
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