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Airline Stock Roundup: American Airlines to Join Dow Transports, United Continental Gives Fresh Q3 View

Zacks Equity Research

The past week saw a new member from the airline space making its way into the 131-year old Dow Jones Transportation Average index – American Airlines Group Inc. AAL. The carrier is set to join the index – a price-weighted average of 20 U.S. transportation securities – after the close of trading today. American Airlines Group will be the sixth airline company to currently feature on the index.

The Fort Worth, TX-based carrier also revealed impressive traffic numbers for September. Apart from American Airlines, JetBlue Airways Corporation JBLU, Southwest Airlines Co. LUV and United Continental Holdings UAL were the other notable carriers that unveiled traffic numbers for September. United Continental also provided a favorable guidance for the third quarter, particularly with respect to pre-tax margin and Passenger Revenue per Available Seat Mile (PRASM).

On the price front, the NYSE ARCA Airline index climbed 2.7% to $90.28 over the last 5 trading days.

 (Read the last Airline Stock Roundup for Oct 07, 2015).

Recap of the Past Week’s Most Important Stories

1. American Airlines Group will feature in the legendary 131-year old Dow Jones Transportation Average replacing trucking company, Con-way Inc., effective close of trading on Oct 14. Con-way’s impending acquisition by XPO Logistics prompted the change in the benchmark’s composition. The 20-member list already includes airline companies like Delta Air Lines Inc. DAL and JetBlue Airways Corporation (read more: American Airlines to Replace Con-way in Dow Transports).

On the traffic front, the metric measured in revenue passenger miles (RPMs) improved 7.2% on a 3.7% rise in capacity for the month of September. Since air traffic growth outpaced capacity growth, load factor increased to 82.7% from 80% in Sep 2014. The levels reached by all the three measures were the highest recorded ever for September (read more: American Airlines Up on September Traffic, PRASM Woes Stay).

2. Traffic increased 13.3% at low-cost carrier, JetBlue Airways, on a 13.1% rise in capacity. The greater increase in capacity compared to traffic led to a decrease in load factor. PRASM for September improved 1% on a year-over-year basis (read more: JetBlue's September Traffic Gains 13.3% Y/Y, PRASM Rises).

3. Several flights of Southwest Airlines were delayed owing to a software glitch that caused immense harassment to passengers. The problem was first detected in the morning of Oct 11, and persisted til the evening. As per the Dallas-based carrier, nearly 450 out of the 3600 flights scheduled for departure were postponed during the day. The error has since been rectified. The company also revealed a 11.4% rise in traffic for September on a 8.4% capacity expansion (read more: Southwest Airlines Flights Postponed for Technical Reasons).  

4. Traffic at United Continental Holdings climbed 1.4% on a year-over-year basis to $16.86 billion in Sep 2015. Consolidated capacity too expanded 1.4%. Load factor remained flat at 82.9%. PRASM is now expected to decline in the range of 5.5% to 6% in the third quarter (previous guidance had projected a decline in the band of 5% to 7%).

Pre-tax margin is now projected in the range of 16% to 17% (previous guidance: 13.5% to 15.5%). Fuel price (including all cash settled hedges) is projected at $1.97 per gallon for the third quarter. Moreover, consolidated capacity for the quarter is projected to grow at 2.1% on a year-over-year basis. The figure is at the higher end of the previously projected range of 1.25% to 2.25% due to fewer cancelled flights in the quarter (read more: United Airlines September Traffic Up on New Offers & Routes).

5. Traffic at Hawaiian Airlines, which is owned by Hawaiian Holdings, Inc. HA, came in at 1.18 billion, up 2.3% from 1.16 billion recorded a year ago. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) inched up 2.8% to 1.44 billion. However, the load factor decreased to 82.1% from 82.5% in Sep 2014 (read more: Hawaiian Airlines' September Traffic up on Favorable Factors).

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

18.10%

33.0%

UAL

12.65%

-4.90%

GOL

-9.20%

-66.67%

DAL

7.49%

10.79%

JBLU

-2.56%

25.63%

AAL

13.56%

-8.46%

SAVE

5.43%

-34.68%

LUV

6.56%

-3.95%

CPA

15.07%

-48.93%

ALK

-2.04%

18.22%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As seen in the chart above, most of the major airline stocks traded in the green over the past week. On the other hand, majority of the stocks shed value over the last six months with Latin American carrier GOL Linhas GOL declining the most.

What's Next in the Airline Biz?

It will be all about earnings in the coming days. Major players in the space like American Airlines Group and Southwest Airlines are slated to unveil their third quarter financial numbers over the next few days. We expect the results of the carriers to be yet again aided by weak oil prices.

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SOUTHWEST AIR (LUV): Free Stock Analysis Report
 
JETBLUE AIRWAYS (JBLU): 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
 
HAWAIIAN HLDGS (HA): Free Stock Analysis Report
 
AMER AIRLINES (AAL): Free Stock Analysis Report
 
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