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Airline Stock Roundup: Improved Q4 Unit Revenue Views From UAL, LUV, JBLU & More

Zacks Equity Research

Major airline companies like United Continental Holdings UAL, Southwest Airlines LUV and JetBlue Airways JBLU unveiled improved unit revenue views for fourth-quarter 2017 over the course of the last five trading days. This indicates that things are looking up for the airline space post-hurricanes.

The bullish forecasts were revealed by the companies while disclosing their respective November traffic numbers. While load factor (percentage of seats filled by passengers) increased at Southwest Airlines, the metric declined at JetBlue Airways as capacity expansion was surpassed by traffic growth at the Long Island City, New York-based carrier. United Continental also announced an additional buyback program.

Hawaiian Airlines — the wholly owned subsidiary of Hawaiian Holdings HA — also grabbed headlines as it emerged as the most punctual airline in the United States for October. Moreover, the long-standing dispute between leading U.S. carriers and their Gulf counterparts witnessed a major development in the week. According to a Reuters report, representatives of the United States and Gulf carriers discussed about the issue with officials of the U.S. administration.

We remind investors that major U.S. carriers like Delta Air Lines DAL, American Airlines and United Continental had complained to the U.S. administration in 2015 that the massive subsidies and other benefits enjoyed by the three state-owned carriers — Qatar Airways, Etihad and Emirates — were unfair as they deny a level playing field to the carriers in the United States.

On the price front, the NYSE ARCA Airline Index gained more than 1% to $114.71 over the last five trading days, buoyed by the improved unit revenue views of major sector participants.

(Read the last Airline Stock Roundup for Dec 6, 2017).

Transportation - Airline Industry 5YR % Return

 

Transportation - Airline Industry 5YR % Return

 

Recap of the Past Week’s Most Important Stories

1. At United Continental, traffic — measured in revenue passenger miles (RPMs) — was 17.02 billion, up 5.1% from the year-ago figure. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) also climbed 5.1% to 20.80 billion (Read more: United Continental's November Traffic Up, PRASM View Bullish).

United Continental carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. At Southwest Airlines, RPMs increased 3.4% year over year to 10.80 billion in November. Meanwhile, ASMs climbed 2.5% to 12.58 billion. The company now anticipates fourth-quarter 2017 operating revenues per ASM (RASM) to increase 1-2%, higher than the previous guidance (Read more: Southwest Airlines November Traffic Up, RASM View Raised).

3. JetBlue also provided an improved guidance for fourth-quarter RASM. The carrier now expects RASM in the range of down 0.5% to up 1.5% (on a year-over-year basis). The revised guidance reflects an improvement from the prior outlook of a decline of 3% to flat year over year. The low-cost carrier now expects hurricanes Irma and Maria to hurt its fourth-quarter results to the tune of approximately 50 basis points. This projection is also an improvement over the previous forecast of one to two percentage points.

Meanwhile, load factor declined 120 basis points in the month to 84.2% as traffic growth (2.8%) was outpaced by capacity expansion (4.3%). In the same month, the carrier registered a completion factor (system wide) of 99.7% with 86.5% flights on schedule.

4. Gol Linhas GOL issued a bullish outlook for 2018 driven by an improved Latin American economy. The company expects revenues in 2018 to come in at approximately R$11 billion compared with the R$10.4 billion estimated in the current year.

Load factor rose to 81% from 77.8% a year ago, owing to traffic expansion (7.1%) exceeding capacity growth (2.8%) (Read more: GOL Linhas Reports Robust November Traffic Figures).

5. The latest Air Travel Consumer Report unveiled by the U.S. Department of Transportation revealed that Hawaiian Airlines secured the top position among U.S. carriers in October 2017 with respect to punctuality as 89.5% of its flights arrived on time.  Delta was the second-most punctual U.S. carrier with 89.4% of its flights arriving on time. According to the report, 84.8% of flights operated by U.S. carriers (considered in the report) were on schedule in October, reflecting an improvement from 83.6% recorded in September.

The rate of cancelled scheduled domestic flights decreased to 0.7% in October from 3.3% recorded in the previous month. Flight cancellations were high in September primarily due to the hurricanes.

6. At Spirit Airlines SAVE, RPMs increased 17.3% to 2.08 billion in November. ASMs increased 17.1% to 2.55 billion in the month. Load factor improved 10 basis points to 81.4% as traffic growth outpaced capacity expansion. Meanwhile, the carrier registered a completion factor of 89.7% with 99.6% flights on schedule.

Price Performance

The following table shows the price movement of the major airline players over the past week and during the last 6 months.

 

The table above shows that most airline stocks traded in the green in the past week resulting in the NYSE ARCA Airline Index gaining. Shares of Southwest Airlines appreciated the most (5.9%) over the past week, driven by its impressive traffic results and bullish guidance. Over the course of six months, the NYSE ARCA Airline Index depreciated 1.5%.

What's Next in the Airline Space?

Investors will keenly await updates from Delta’s investor day, scheduled on Dec 14.
 

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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
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
 
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