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Airline Stock Roundup: United Continental's Passenger Fiasco, American Airlines in Focus

Zacks Equity Research

United Airlines, the wholly owned subsidiary of United Continental Holdings UAL, recently came into the spotlight, albeit for all the wrong reasons. The airlines drew a lot of flak after a passenger, reportedly a 69-year-old Chinese doctor, was forcefully removed from one of its overbooked aircraft (3411) at Chicago’s O’Hare International Airport on Apr 9. Currently, he is being treated at a Chicago hospital.

The horrific incident, which was captured by fellow passengers on mobile and uploaded on social media, earned the carrier grave criticism. Naturally, shares declined (losing 1.13% on Apr 11) forcing CEO, Oscar Munoz, to issue a public apology. The incident sparked off an outrage in China, with allegations of racial discrimination, as the video went viral. This is a extremely unfavorable for United Continental as China is one of its key markets. The incident entirely shifted focus from the March traffic report of the company.

Apart from United Continental, other airline heavyweights like Southwest Airlines LUV and American Airlines Group AAL too released their respective traffic numbers for March.

Transportation - Airline Industry 5YR % Return

Transportation - Airline Industry 5YR % Return

Read the last Airline Stock Roundup for Apr 5, 2017.

Recap of the Past Week’s Most Important Stories

1. Oscar Munoz has called for an in-depth review of the company’s policies particularly regarding overbooked flights in his third public reaction since the misbehavior with the passenger became public. Results of the review are expected to be available by Apr 30.

Munoz appeared to be more apologetic for the incident in the latest response, as the company’s market value dropped sharply on Apr 11, after having called the passenger “disruptive and belligerent” earlier for having refused to voluntarily vacate his seat in the overbooked flight. The March traffic report of the company was shoved to the background by the horrific incident, which has drawn severe criticism from all quarters, including White House press secretary, Sean Spicer (Read more: United Continental's Passenger Fiasco Dulls Traffic Growth).

2. Low-cost carrier Southwest Airlines recorded a 3.9% year-over-year improvement in revenue passenger miles or RPMs (a measure of air traffic) on a year-over-year basis to 11.3 billion. Available seat miles or ASMs (a measure of capacity) expanded 4.5% year over year to 13.4 billion. Another important metric – load factor (percentage of seats filled by passengers) – deteriorated 50 basis points (bps) to 84.1% during the month as capacity expansion outpaced traffic growth, leading to relatively empty planes (Read more: Southwest Airlines March Traffic Grows, Stock Up).

3.  Shares of Fort Worth, TX-based American Airlines gained on Apr 11, following the company’s announcement of bullish first-quarter view for total revenue per available seat mile (TRASM: a key measure of unit revenues). The carrier now expects the key metric to grow in the band of 2%–4% (the earlier guidance had called for an increase in the range of 1.5%–3.5%).

American Airlines now expects pre-tax margin, excluding special items, in the range of 4–6%  compared with the original 3–5%. The raised guidance is primarily based on higher yields. First-quarter cost per available seat mile (CASM: excluding fuel and special items) is anticipated to increase approximately 8% due to higher labor costs.

The upbeat guidance was issued by the company alongside March traffic data. Traffic – measured in revenue passenger miles (RPMs) – was 18.8 billion, down 1.2% from the year-ago figure. On a year-over-year basis, consolidated capacity (available seat miles/ASMs) fell 0.9% to 23 billion. Load factor decreased 200 bps to 81.5% due to a greater reduction in traffic than capacity contraction.

4.  Shares of Hawaiian Holdings, Inc. HA – the parent company of Hawaiian Airlines – gained significantly on Apr 10, following the release of its traffic report for the month of March and an upbeat first-quarter guidance. The company witnessed a 7.2% rise in traffic. Capacity expanded only 4.5%, leading to an increase in load factor.

Operating revenue per available seat mile is now expected to rise between 6.5% and 8% (old guidance had called for an increase in the band of 4%–7%). This upward revision was driven by the company's better-than-expected load factor and yield from the domestic market (Read more: Hawaiian Holdings Traffic Increases in March, Stock Up).

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

5. Delta Air Lines DAL, which had to cancel multiple flights in the past week due to adverse weather in Atlanta, was the most punctual among the leading U.S. carriers according to a report released by the UK-based provider of digital flight information — OAG. Per the report, 82.3% of its flights arrived on time (Read more: Delta Ahead of Other Major US Carriers per March OAG Report).

6. Alaska Air Group Inc. ALK witnessed a 5.5% increase in consolidated traffic. On a year-over-year basis, consolidated capacity rose 5.7%. Meanwhile, the load factor or percentage of seats filled by passengers decreased to 85.4% from 85.6% recorded in Mar 2016, as capacity expansion outpaced traffic growth.(Read more: Alaska Air Group Reports Increased Traffic in March).

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

6.1%

1.2%

UAL

0.4%

33.7%

GOL

13.2%

61.3%

DAL

-0.8%

15.3%

JBLU

5.1%

21.2%

AAL

6.7%

17.5%

SAVE

3.3%

24.9%

LUV

4.2%

37.6%

CPA

3%

33%

ALK

-2.1%

23.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that most airline stocks traded in the green in the past week resulting in the NYSE ARCA Airline Index gaining 1.4% to $111.6 over the period. Shares of GOL Linhas GOL appreciated the most (13.2%) over the past week. Over the course of six months, the NYSE ARCA Airline Index appreciated 21%.

What's Next in the Airline Space?

Apart from further updates on United Continental’s fiasco, investors will keenly await the first quarter 2017 earnings report of the company on Apr 17.

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Southwest Airlines Company (LUV): 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
 
Hawaiian Holdings, Inc. (HA): Free Stock Analysis Report
 
American Airlines Group, Inc. (AAL): Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK): Free Stock Analysis Report
 
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