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Airline Stock Roundup: DAL Inks $1.9 Billion Deal With LTM, AAL, LUV in Focus

Maharathi Basu

In the past week, Delta Air Lines DAL announced that it intends to invest $1.9 billion in Latin America’s largest airline — LATAM Airlines Group LTM. However, another Latin American carrier GOL Linhas GOL suffered a blow as Delta announced that it expects to exit its stake in the former. Consequently, share prices of LATAM Airlines and GOL Linhas moved in opposite directions following the announcement of the deal.

American Airlines AAL also hit the headlines in the past week. The carrier not only provided details on the additional flights connecting Tokyo Haneda Airport with key U.S. destinations, that are scheduled to start operations from 2020, but also disclosed plans to start additional flights to Latin America from next year.

Moreover, an expansion-related update was available from Southwest Airlines LUV. The low-cost carrier stated that due to increased demand it intends to offer flights on the Sacramento-Honolulu and Honolulu-Lihue, Kauai routes from Nov 10, 2019. The flights were initially scheduled for launch next January.

(Read the last Airline Stock Roundup here).

Recap of Past Week’s Most Important Stories

1. In a bid to expand its presence in Latin America, Delta will buy a 20% stake in LATAM Airlines.  As part of the partnership, the Atlanta, GA-based airline will also invest $350 million in aiding LATAM’s transition from Oneworld to join Delta’s network. The contract is also a step forward for Delta’s fleet transformation initiatives. The carrier will acquire four A350 aircraft from LATAM Airlines apart from assuming the Latin American carrier’s commitment to buy 10 additional A350 aircraft. The jets are to be delivered between 2020 and 2025. Delta anticipates the deal to be accretive to its earnings over the next two years.

Notably, American Airlines had tried to strengthen its partnership with LATAM Airlines. However, in May, the Supreme Court of Chile rejected the deal as that would have affected competition. (Read more: Delta Partners With LATAM to Buy 20% Stake for $1.9B)

2. Following the U.S. Department of Transportation’s (DOT) decision to award American Airlines two additional slots (Dallas and Los Angeles) pertaining to Tokyo Haneda operations, the carrier stated that it intends to operate daily flights between Dallas and Tokyo Haneda Airport from Mar 29, 2020. The Dallas route apart, American Airlines will operate a second flight connecting Los Angeles and Tokyo Haneda from Mar 29.

With the 2020 summer Olympics to be held in Tokyo, it is natural that flights to the Japanese capital will attract substantial traffic. Another advantage associated with the Haneda Airport is its convenient location compared with Tokyo’s other international airport — Narita International Airport. Owing to its nearness to downtown Tokyo, Haneda Airport is often preferred by passengers, particularly business travelers.

The preference enjoyed by Haneda Airport is evident from American Airlines’ decision to reduce flights to Narita, including the discontinuation of the Chicago-Narita service from Mar 30, 2020.

Apart from its decision to boost Latin American service, American Airlines announced the extension of its seasonal services to important European destinations. Also, the airline will introduce a flight connecting Boston and London Heathrow.

3. Southwest Airlines announced its intention to introduce a daily service between Sacramento and Kahului, Maui, beginning Mar 7, 2020. It will also start operations connecting Oakland, CA, with Lihue, Kauai and Kona, and San Jose, CA and Lihue, Kauai and Kona.  Additionally, this Zacks Rank #3 (Hold) carrier intends to ramp up its spring travel period by offering customers a daily service between Denver and Des Moines starting Mar 7. Following this new operation, the carrier will set a record in March with 235 nonstop departures a day to 65 cities in Denver International Airport. (Read more: Southwest to Offer Customers More Options for Spring Travel)

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

4 According to a Reuters report, Ryanair Holdings’ RYAAY CEO Michael O'Leary stated in Vienna that the possibility of a “hard Brexit” (Britain exiting the European Union without a deal) was diminishing. O'Leary also reportedly said that Ryanair was not interested in purchasing any airlines of Thomas Cook, which collapsed in September, 2019. Meanwhile, Ryanair pilots are reportedly being asked to relocate or take unpaid leave in a bid to save job losses and avoid a Thomas Cook like situation.

5. In an environment-friendly move, JetBlue Airways JBLU announced its decision to convert its fleet of baggage tractors and belt loaders to electric powered. Due to this initiative, the carrier is introducing the largest fleet of electric ground service equipment (eGSE) at New York’s JFK International Airport. The carrier also stated that going forward electric bag tugs and belt loaders will replace the previously gasoline-powered vehicles. Apart from improving operational efficiencies, the conversion will result in savings of more than $500,000 in-ground fuel costs annually. Moreover, the carrier’s move to convert to eGSE will result in reducing four million pounds of CO2 greenhouse gas emission (1,700 metric tons) per year.

Performance

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

The table above shows that even though most airline stocks traded in the red over the past week, the NYSE ARCA Airline Index gained 2% to $99.48 on the back of LATAM Airlines’ significant gains following the Delta deal. Over the course of six months, the same depreciated 9.7%.

What's Next in the Airline Space?

Investors will look forward to September traffic reports of the likes of Delta in the coming days.


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Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
 
LATAM Airlines Group S.A. (LTM) : Free Stock Analysis Report
 
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