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Airline Stock Roundup: Buffett Dismisses Airline Buyout Rumors; United Continental Adds Routes

Zacks Equity Research

The past week saw several newsworthy developments taking place in the airlines sector. Putting all speculations to rest, billionaire investor Warren Buffett rejected the possibility of eventually owning an airline company in spite of his recent interest in the space. The speculations had gained ground after Buffett’s Berkshire Hathaway had increased stakes in heavyweights like Delta Air Lines DAL and American Airlines Group AAL in the fourth quarter of 2016. Moreover, Buffet invested heavily in Southwest Airlines LUV in the quarter.

This apart, the past week saw United Airlines, the wholly owned subsidiary of United Continental Holdings UAL, boosting its travel network by adding multiple routes across the U.S. and Europe. According to a Bloomberg report, Delta is looking to strengthen its presence in the lucrative Asian market by strengthening its ties with Korean Air. Additionally, a survey found that customers were more satisfied by air travel in 2016 than in 2015.

Transportation - Airline Industry 5YR % Return

 

Transportation - Airline Industry 5YR % Return

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

Recap of the Past Week’s Most Important Stories

1. Stocks in the airline space were adversely impacted on Feb 27, after Warren Buffet reportedly stated that he, through his company, is unlikely to make substantial additions to the above $9 billion investments in air carriers. The highly revered investor was against holding more than 10% of any stock in the space.

2. In a bid to expand further, United Airlines has decided to add multiple routes both on the international and the domestic front. The updated domestic services will begin in June. The company expects to expand the Basic Economy Fare option (Read more: United Prepares for Take Off with New Destinations, Services and Fare Options).

United Continental has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3 Airlines of America recently stated that 49% of participants in a survey revealed that they flew “commercially” at least once in 2016. The figure compared favorably to 45% recorded in 2015. Also, there was a year-over-year increase in consumer satisfaction in 2016. The survey found that 85% of the passengers were “very satisfied”/ “somewhat satisfied” with their 2016 air travel experience. The comparable figure was 80% in 2015.

Also, the vast majority of Americans (78%) were in favor of reforms to modernize the U.S. air traffic control system (ATC). We note that President Donald Trump also spoke about the need to modernize ATC in his meeting with airline executives last month.

4. Delta has been looking to strengthen its Asian presence for quite some time. To that end, the Atlanta, GA-based carrier had expanded its codeshare agreement with Korean Air last year. In a bid to strengthen the alliance further, the two companies are reportedly in talks to form a joint venture (JV). The JV, upon its formation, would benefit Delta immensely.

The 2018 Winter Olympics, which are scheduled to be held in South Korea, would also benefit Korean Air as the JV would attract greater traffic by virtue of the Asian carrier’s improved accessibility to North America.

5. According to various media reports, low-cost carrier JetBlue Airways JBLU intends to start operations connecting the Worcester Regional Airport and New York's John F. Kennedy International airport. The new route is expected to become operational by Dec 31, 2017. The flights, once operational, would expand the Long Island City, NY-based carrier’s presence in Worcester.

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

-2.51%

2.88%

UAL

-1.75%

45.6%

GOL

2%

42.1%

DAL

-3.73%

35.61%

JBLU

0.10%

26.25%

AAL

-0.65%

27.92%

SAVE

1.66%

32.08%

LUV

-0.05%

58%

CPA

2.29%

38.68%

ALK

1.16%

45.44%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that airline stocks exhibited a mixed trend with respect to price in the past week. While shares of Copa Holdings CPA gained the most (2.29%), Delta was the biggest laggard (3.73%) during the period. The NYSE ARCA Airline Index was almost flat at $110.06 during the period. Over the last six months, the NYSE ARCA Airline Index appreciated 24.1%. Shares of Southwest Airlines appreciated the most (58%) during the period.

What's Next in the Airline Space?

We expect February traffic reports from the likes of Delta and Hawaiian Holdings HA in the coming days.

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Southwest Airlines Company (LUV): Free Stock Analysis Report
 
JetBlue Airways Corporation (JBLU): Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
 
Copa Holdings, S.A. (CPA): Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA): Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL): Free Stock Analysis Report
 
American Airlines Group, Inc. (AAL): Free Stock Analysis Report
 
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