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Airline Stock Roundup: LUV's Bullish Q2 RASM View, AAL, JBLU & DAL in Focus

Maharathi Basu

In the past week, Southwest Airlines LUV issued a bullish update with respect to revenues for the second quarter of 2019. Strong demand for air travel and anticipation of impressive passenger yields led to an upbeat view.

Also, updates from the Paris Air Show dominated the headlines, with American Airlines AAL and JetBlue Airways JBLU looking to add A321XLRs to their respective fleet. Notably, Airbus launched A321XLR — jets with the longest range among the European company’s single-aisle offerings — at the event on Jun 17.

Airline behemoth, Delta Air Lines DAL, also featured in the news by virtue of its initiative to strengthen foothold in Asia. In order to fulfill its objective, Delta bought a 4.3% stake in Hanjin Kal Corp. — the largest shareholder of Korean Air Lines. Like Delta, United Airlines — the wholly-owned subsidiary of United Continental Holdings UAL — is also looking to fortify its presence in the lucrative Asian market. To this end, the Chicago-based carrier inked a codeshare agreement with Vistara — a New Delhi, India-based airline.

(Read the last Airline Stock Roundup here)

Recap of Past Week’s Most Important Stories

1. Southwest Airlines’ second-quarter 2019 results are scheduled to be out on Jul 25. For the quarter, its operating revenue per available seat mile (RASM) is anticipated to increase 6.5-7.5% year over year compared with 5.5-7.5% expected earlier. However, operating costs per available seat mile (CASM), excluding fuel and oil expense and profit-sharing expense, are now projected to rise 11.5-12.5% year over year. The previous view for the metric was in the range of 10.5-12.5% growth. This escalation in costs can be attributed to reduced capacity during the second quarter as a result of the Boeing 737 MAX groundings. (Read more: Southwest Q2 RASM View Up, Cost View Bleak on MAX Groundings)

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

2. American Airlines agreed to purchase 50 Airbus A321XLR jets and became the first major U.S. carrier to buy the European planes since their launch. Following the agreement, American Airlines intends to replace aging planes in its fleet like Boeing 757s with the A321XLR jets. Per the terms of the deal, this Fort Worth, TX-based carrier will order 20 A321XLRs that have an incredible 4700 nautical mile range. The deal also allows the U.S. carrier to convert 30 of its existing orders for the smaller Airbus A321neo to Airbus’ new offering. (Read more: American Airlines Inks Deal to Buy 50 Jets From Airbus)

3. JetBlue has decided to convert 13 of its existing orders for the smaller Airbus A321neo to A321XLR jets as it aims to enter and subsequently expand in the trans-Atlantic market. In a bid to modernize its fleet further, JetBlue, which aims to deliver earnings of $2.50-$3 by 2020, has also converted options for 10 Airbus A220-300s (deliveries anticipated to commence in 2025) to firm orders. Currently, this low-cost carrier’s decision to order additional A220s is in line with its objective to expand in the Americas. (Read more: JetBlue Eyes New Long-Range Airbus Jets at Paris Air Show)

4. Delta plans to increase its stake to 10% in Hanjin Kal, subject to regulatory approvals. In fact, Delta’s interest in Hanjin Kal is a blessing for this Korean company’s leadership. Ever since the demise of Cho Yang-ho, the chairman of the Hanjin Group, in April, this family-run company has been engulfed in management-related controversies. Cho Won-tae was subsequently appointed as the group’s chairman — a move that has been questioned by the activist fund Korea Corporate Governance Improvement (KCGI). At present, KCGI’s disappointment pertaining to the group’s corporate governance is giving rise to fears about an ownership battle at the conglomerate. In fact, Delta’s decision to invest in Hanjin Kal and subsequently increase its stake has thwarted KCGI’s desires to take control of the group. (Read more: Delta Expands in Asia Via Investment in Korean Air's Parent)

5. United Airlines’ deal with Vistara is set to be effective this fall. Once operational, the deal will expand the carrier’s international network to cover more than 20 destinations across India. Per the agreement, connecting flight options will be available for United Airlines’ passengers traveling from the United States. Further, United MileagePlus members will be able to earn and redeem frequent flyer miles on all Vistara routes. Passengers will also enjoy a coordinated customer service between United Airlines and Vistara. Moreover, travelers will have the privilege of single-ticket booking and checked baggage to their final destination. (Read more: United Airlines Inks Codeshare Deal With India's Vistara)

Price Performance

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

The table above shows that the majority of the airline stocks traded in the red over the past week. Consequently, the NYSE ARCA Airline Index declined approximately 2% over the same time period. In the past six months, the sector tracker increased 12.1% driven by impressive gains at the likes of GOL Linhas GOL and Copa Holdings CPA.

What's Next in the Airline Space?

Stay tuned for usual news updates in the space. The focus will also be on the movement of oil prices going forward as expenses on fuel are considered a major component of operating expenses for carriers.

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JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
Copa Holdings, S.A. (CPA) : Free Stock Analysis Report
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
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