Sentiment around Delta Air Lines, Inc. (NYSE: DAL), Southwest Airlines Co (NYSE: LUV) and American Airlines Group Inc (NASDAQ: AAL) is particularly vulnerable to passenger revenue per available seat mile, according to Raymond James.
By Raymond James’ account, jet fuel remains the best predictor of PRASM performance, with a one-to-three-quarter lag in effect. In fact, jet fuel is the only factor demonstrating meaningful correlation, analyst Savanthi Syth said in a Monday note.
Neither the purchasing managers index nor the consumer confidence index provide meaningful predictive insight into PRASM trends, the analyst said.
The S&P 500 proves similarly unrelated, she said.
“While we were concerned that stock market declines could eventually pressure PRASM due to the market's impact on business confidence and individual net worth levels, we do not see any meaningful relationship between the two."
How To Read Cause, Effect
Jet fuel’s prominent place in the PRASM equation suggests sentiment struggles in the near future, Syth said.
“While jet fuel prices have seen a sharp sell-off since October, airlines will benefit from year-over-year declines only starting [in the first quarter of 2019]," assuming current levels hold, the analyst said.
“This implies risk to RASM trends starting [in the second quarter of 2019].”
Syth expects sustained demand to yield a moderation rather than correction of PRASM as fuel costs rise in the second quarter.
“Somewhat complicating matters will be the timing of Easter, with the related holiday travel split between [the first and second quarters in 2018] vs. all in [Q2 of 2019]."
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