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Airline Stock Roundup: Delta Air Lines Hikes Dividend, Busiest Summer in the Cards?

Zacks Equity Research

The past week saw quite a few updates in the airline space. In a widely-expected move, the Atlanta, Georgia-based Delta Air Lines DAL hiked its quarterly dividend and trimmed its capacity growth plan for the second half of the year. Moreover, the carrier said in a presentation that it intends to complete the existing $5 billion repurchase plan by May 2017.

Apart from these, the headlines were also dominated by developments like the release of a forecast by Airlines for America (‘A4A’) – the largest airline trade association in the U.S. According to the projection, the upcoming summer season (Jun 1–Aug 31) will be the busiest one for U.S. carriers in terms of air travel.

Strong demand for travel and low fuel costs are expected to drive passenger volumes during summer to an all-time high. Moreover, the expected total volume (231.1 million) is 4% higher than the year-ago figure. Furthermore, JetBlue Airways Corporation’s JBLU April load factor (% of seats filled with passengers) declined as traffic growth was outpaced by capacity expansion.

On the earnings front, Latin American carrier GOL Linhas Aereas Inteligentes S.A. GOL reported encouraging first-quarter 2016 results. However, the carrier’s traffic results for April continued to be sluggish, hurt by a weak economy.

Read the last Airline Stock Roundup for May 11, 2016.

Recap of the Past Week’s Most Important Stories

1. JetBlue Airways posted a rise in traffic to the tune of 8.6% on 10.8% capacity expansion. Load factor decreased 160 basis points to 84.1%. Revenue per available seat mile (RASM) in the month fell 12.5% on a year-over-year basis (read more:JetBlue April Traffic Improves, RASM Declines 12.5%).

 2. According to a forecast released by Airlines for America (“A4A”) – the largest airline trade association in the U.S. – the ongoing summer (June-August) will be the busiest of all times for American carriers in terms of air travel. The trade organization has predicted that approximately 231.1 million passengers will be transported by various U.S. carriers in the three months under consideration.

The air travel estimate for the summer season, which translates into 2.51 million fliers per day, represents a 4% increase from the comparable year-ago figure. The organization has also predicted that passenger volume on international flights will touch 30.5 million or 331,000 per day this summer. To meet the surge in travel demand, U.S. carriers are increasing the number of available seats. With carriers making substantial investments in aircraft, they will offer larger planes this summer to meet the surge in demand. In a customer-friendly move, the organization has called on U.S. Transportation Security Administration to avoid long queues at airports through proper staff management

3. GOL Linhas reported earnings of 27 cents per share in the first quarter of 2016 which compared favorably with the Zacks Consensus Estimate of a loss of $1.20. Net revenue climbed 8.3% year over year to approximately $ $696.7 million (read more: GOL Linhas Posts Q1 Profit, Revenues Up; Keeps View).

On a separate note, the carrier reported disappointing traffic results for April. Traffic – measured in revenue passenger kilometers (RPK) – stood at 2.53 billion, down 18.4% from 3.1 billion recorded a year ago. Also, on a year-over-year basis, consolidated capacity (or available seat kilometers/ASKs) was down 15.4% to 3.34 billion (read more: GOL Linhas April Traffic Tanks 18.4%, Capacity Down).

4. Delta Air Lines raised its cash quarterly dividend to over 20 cents per share (81 cents per share annualized), representing an increase of 50% over the previous quarterly payout of 13.5 cents per share (54 cents per share annualized). The new dividend, which has been approved by the company’s board of directors, will be paid to investors from the third quarter of 2016. The carrier also intends to accelerate its buyback program. The company has managed to reduce its net debt significantly from the 2009 levels. The airline behemoth, which has deferred the delivery of 4 wide-bodied aircraft from 2018 to 2019/20, intends to reduce capacity growth to below 2% in the second half of 2016. Delta Air Lines, which trimmed its capacity growth plan by approximately 1% for the final quarter of 2016, expects to be the first network carrier to return to “positive unit revenue growth later this year” (read more: Delta Air Lines to Hike Dividend, Close Buyback Plan).

5 The antitrust unit of the United States Department of Justice (DOJ) has asked for more information on Alaska Air Group’s ALK proposed buyout of Virgin America VA from both the companies.  The request, which the companies believe is part of the DOJ review process, has not worried the companies as they are co-operating fully with the DOJ. They are confident of receiving the requisite regulatory approvals to close the deal by the originally scheduled date of Jan1, 2017.  In April this year, Alaska Air Group inked a deal to buy Virgin America.

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

-3.90%

17.18%

UAL

-3.50%

-21.94%

GOL

0.0%

-10.91%

DAL

1.58%

-8.54%

JBLU

-5.27%

-28.03%

AAL

-3.37%

-21.82%

SAVE

0.27%

16.49%

LUV

-1.88%

-8.87%

VA

-0.90%

50.86%

ALK

-5.86%

-16.20%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that most airline stocks traded in the red over the past week leading to the NYSE ARCA Airline index declining 2.05% to $84.78 over the past 5 trading days as oil prices move north. Shares of Alaska Air Group depreciated the most (5.86%) while Delta Air Lines emerged as the biggest gainer (1.58%) as investors seemed to be pleased with the carrier’s bullish update.

Over the past six months too most airline stocks have lost value with the NYSE ARCA Airline index declining 5.67%. Shares of Virgin America appreciated the most (50.86%) during the period while JetBlue Airways emerged as the biggest laggard (28.03%).

What's Next in the Airline Space?

Investors will keenly watch presentations by airline heavyweights like American Airlines Group AAL and also keep an eye on shareholder friendly announcements. Focus will also be on updates pertaining to Southwest Airlines’ LUV dispute with its pilots.

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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
 
ALASKA AIR GRP (ALK): Free Stock Analysis Report
 
AMER AIRLINES (AAL): Free Stock Analysis Report
 
VIRGIN AMERICA (VA): Free Stock Analysis Report
 
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