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Airline Stock Roundup: Delta Trims Q1 PRASM View; United Continental's Strategy Update and More

Zacks Equity Research

The past week saw the Atlanta, GA-based Delta Air Lines DAL trimming its guidance for passenger unit revenues (PRASM: a key measure of unit revenues) for the first quarter of 2017. The tepid view stemmed from the lackluster performance of the metric in January and lower-than-expected improvement in February. Not only did Delta’s shares depreciate following the trimmed guidance, but the entire sector was adversely affected. 

Airline stocks also lost volume following the travel ban announced by President Trump was revised. Nonetheless, the past week saw United Continental Holdings UAL rendering a bullish presentation at the J.P. Morgan Global High Yield & Leveraged Finance Conference Presentation. Additionally, the U.S. Transportation Department (DOT) tentatively awarded Mexico City slots to some carriers, including U.S. low-cost airline players like Alaska Air Group ALK, JetBlue Airways Corp. JBLU and Southwest Airlines Co. LUV.

Transportation - Airline Industry 5YR % Return

Transportation - Airline Industry 5YR % Return

(Read the last Airline Stock Roundup for Mar 01, 2017).

Recap of the Past Week’s Most Important Stories

1. Delta unveiled a gloomy forecast for the first quarter of 2017, particularly with respect to PRASM. The metric is now expected to remain flat on a year-over-year basis in the first quarter (previous guidance: in the range of flat to 2% increase). Operating margin is now estimated in the range of 10%–11% (old guidance: 11%–13%). The rise in fuel costs prompted the downward revisions. However, unit revenue trends were expected to improve through the rest of 2017 (Read more: Delta's Gloomy Forecast and Travel Ban Worries Send Airline Stocks Lower).

Delta posted a decline in air traffic for the month of Feb 2017. Consolidated traffic – measured in revenue passenger miles (RPMs) – came in at 14.13 billion, down 1.7% year over year. Domestic RPMs declined marginally (Read more: Delta Air Lines February Traffic Falls, Stock Down).

2. United Continental expects PRASM to maintain the uptrend displayed in 2016 and continue improving on a sequential basis in 2017 as well.On a year-over-year basis, the metric is expected in the range of a decrease of 1% to an increase of 1% in the first quarter of 2017. United Continental is also bullish about the prospects of its “Basic Economy” product, which was launched recently (Read more: United Continental Issues Impressive Operational Update).

3. Hawaiian Airlines, the wholly owned subsidiary of Hawaiian Holdings HA , saw a 4.8% rise in traffic to around 1.14 billion in Feb 2017. Meanwhile, Available Seat Miles (ASMs) were flat at 1.38 billion. Load factor (the percentage of seats filled by passengers) increased 380 basis points (bps) to 82.9% in 2017 (Read more: Hawaiian Airlines' Traffic and Load Factor Rise in February).

4. Following the acceptance of the conditions laid down by the DOT by Delta and Grupo Aeromexico (for extending their partnership), some carriers were tentatively awarded slots. Mexico is currently inviting huge traffic, courtesy of the depreciation of the Mexican peso. We believe that the deal, if operational, would be a huge positive (Read more: Airlines Tentatively Awarded Mexico City Slots by DOT).

5. With labor deals in vogue in the airline space, Southwest Airlines inked an “Agreement in Principle” with the International Brotherhood of Teamsters pertaining to the terms of a new contract that covers material specialists of the Dallas-based low-cost carrier. Details of the deal were not disclosed. Material specialists take care of Southwest Airlines’ technical operations inventory management across the system.

 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

-0.31%

-1.92%

UAL

-2.07%

33.63%

GOL

6.9%

24.31%

DAL

-2.67%

21.25%

JBLU

-5.36%

15%

AAL

-5.29%

13.95%

SAVE

-3.48%

27.28%

LUV

-2.35%

46.62%

CPA

-2.16%

22.7%

ALK

-2.68%

33.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that all airline stocks, apart from GOL Linhas GOL, traded in the red in the past week, primarily due to Delta’s disappointing forecast. Consequently, the NYSE ARCA Airline Index declined 4.15% to $107.02 in the last five trading days. Shares of JetBlue depreciated the most in the period.

Over the course of six months, the NYSE ARCA Airline Index appreciated 14.3%

What's Next in the Airline Space?

We expect multiple February traffic reports in the coming days.


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Southwest Airlines Company (LUV): Free Stock Analysis Report
 
JetBlue Airways Corporation (JBLU): Free Stock Analysis Report
 
Gol Linhas Aereas Inteligentes S.A. (GOL): Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA): Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK): Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL): Free Stock Analysis Report
 
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