U.S. Markets closed

Airline Stock Roundup: American Airlines Buys Chinese Carrier Stake; Alaska Air Group in Focus & More

Zacks Equity Research

The past week saw Fort Worth, TX-based American Airlines Group AAL inking a deal with China Southern Airlines ZNH to buy a stake in the latter. American Airlines aims to expand its presence in the lucrative Chinese aviation market through this move. Seattle, WA-based Alaska Air Group ALK also made it to the headlines by virtue of its announcement to do away with the Virgin America brand in 2019.

Meanwhile, Delta Air Lines DAL announced its decision to expand its alliance with Korean Air. The deal will further enhance connectivity between the U.S. and Asia. This apart, Morgan Stanley’s downgrade of the sector to “in line” from “attractive” amid concerns of oversupply was a hot topic of discussion.

Transportation - Airline Industry 5YR % Return

 

Transportation - Airline Industry 5YR % Return

 (Read the last Airline Stock Roundup for Mar 22, 2017).

Recap of the Past Week’s Most Important Stories

1. Alaska Air Group, which acquired Virgin America in Dec 2016,will do away with the brand within the next two years. Justifying the decision, it also added that to be a successful low-cost airline along with wide acceptance on the West Coast, it was a necessity to operate under one brand.

However, all the features of the erstwhile Virgin America will not be reduced to ashes. In order to enhance the flying experience of passengers, those availing Alaska Air Group flights will have some features like enhanced in-flight entertainment, mood lighting and music (Read more: Alaska Airlines to Do Away With Virgin America Brand in 2019).

2. Putting all speculations to rest, American Airlines announced that it will shell out $200 million to purchase a minority stake in Asia’s biggest carrier (in terms of passenger numbers) China Southern Airlines. The deal, however, needs to be approved by regulators. While rumors regarding the buyout were doing the rounds for quite some time, the fact that talks were indeed in progress was confirmed by the Chinese carrier according to a Bloomberg report (Read more: American Airlines Eyes China Southern to Expand in Asia).

3. Key airline stocks like Delta and Southwest Airlines Co. LUV lost value in early trading on Mar 22, after Morgan Stanley downgraded the airline sector. The firm also lowered its rating on American Airlines, which carries a Zacks Rank #3 (Hold), to “equal weight” from “overweight.” According to the firm, American Airlines’ weak margins, cash flow and high debt levels are likely to limit its earnings growth in the future (Read more: Analyst Downgrade Hits Airline Sector, Stocks Rally Anyway). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

4. In a bid to expand its presence in Asia, Delta inked a memorandum of understanding to implement a joint venture arrangement with Korean Air. The customer-friendly deal, which will become effective after regulatory approvals, will see the carriers sharing the costs and revenues on flights as well as coordinating schedules to enhance connectivity between the U.S. and Asia.

In a separate development, Delta aims to introduce a new daily nonstop flight between New York’s John F. Kennedy International Airport (JFK) and Antonio Carlos Jobim International Airport (GIG) in Rio de Janeiro, Brazil. The service – expected to begin from Dec 21 – is pending approval from the U.S. Department of Transportation (Read more: Delta Air Lines to Fly Daily on New York-Rio de Janeiro Route).

5. The security- oriented ban, by the US Transportation Safety Administration,  on carrying electronic devices, larger than mobile phones, on US bound flights operated by some carriers like Egyptair and Etihad from ten airports in seven Middle Eastern nations and Turkey, has been criticized by many market watchers including the director general of the International Air Transport Association. Britain has now joined the US regarding the ban.

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

3.56%

0.42%

UAL

8.53%

38.33%

GOL

6.79%

36.61%

DAL

1.6%

19.22%

JBLU

6.9%

21.4%

AAL

8.4%

18.93%

SAVE

5.5%

24.9%

LUV

4.6%

42.1%

CPA

3%

25.42%

ALK

5.8%

47.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows the airline stocks traded in the green over the past week resulting in the NYSE ARCA Airline Index gaining 5.8% to $111.58following the electronic devices ban. Shares of United Continental Holdings UAL appreciated the most (8.53%). Over the course of six months, the NYSE ARCA Airline Index appreciated 24.74% with shares of Alaska Air Group gaining the most (47.5%).

What's Next in the Airline Space?

Focus will remain on the March traffic reports of the likes of Delta Air Lines and Hawaiian Holdings, Inc. HA in the coming days. Further updates on the electronic devices ban are also awaited.

More Stock News: 8 Companies Verge on Apple-Like Run

Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.

A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Southwest Airlines Company (LUV): Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL): Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA): Free Stock Analysis Report
 
China Southern Airlines Company Limited (ZNH): Free Stock Analysis Report
 
American Airlines Group, Inc. (AAL): Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research