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Airline Stock Roundup: Airfares Continue to Drop; GOL Linhas, JetBlue in Focus

Zacks

The past week saw the Bureau of Transportation Services (BTS) revealing that average airfares in the US had declined in August as well after the sharp fall in July. Apart from the August reading on air fares, the past week saw updates from the likes of GOL Linhas Aereas Inteligentes GOL and JetBlue Airways Corp. JBLU.

Of late, Latin American carrier GOL Linhas has been grappling with a number of headwinds including the weakness in Brazilian economy. The carrier continued its disappointing run with lackluster traffic numbers for August.

JetBlue, on the other hand, made it to the headlines with its environment-friendly initiative. The carrier inked a renewable fuel deal with SG Preston.

During the past week, and United Continental Holdings UAL also came into focus with its expansion-related move. Additionally, the BTS disclosed June traffic data for U.S. carriers in the past week.


TRANSPORTATION-AIRLINE Industry Price Index

TRANSPORTATION-AIRLINE Industry Price Index

(Read the last Airline Stock Roundup for Sep 14, 2016).

Recap of the Past Week’s Most Important Stories

1. GOL Linhas reported dismal August traffic numbers. Traffic – measured in revenue passenger kilometers – declined 5.6% from 3.1 billion recorded a year ago to 2.89 billion. Also, on a year-over-year basis, consolidated capacity (or available seat kilometers) was down 8.1% to 3.7 billion, mainly because of declines of 5.4% and 25.3% in domestic and international capacity, respectively. (Read more: GOL Linhas Posts Decline in Traffic and Capacity in August).

2. In order to reduce carbon emissions, JetBlue Airways signed a deal with bio-energy company, SG Preston, to buy hydro-processed esters and fatty acids-based renewable jet fuel from the latter. This deal is by far the largest, binding commitment for HEFA-based renewable fuel purchase over a long term by an airline company (Read more: JetBlue Signs Mega Renewable Fuel Deal with SG Preston).

3. In a bid to further expand its operations, United Continental joined forces with DHL Global Forwarding to extend services in San Juan. United Continental aims to promote tourism in Puerto Rico through this move. The carrier intends to operate six flights a week connecting San Juan's Luis Munoz Marin Airport to Newark Liberty International Airport from Dec 18, 2016.

Currently, United Continental operates only one flight on the route per week (Read more: United Continental to Expand Operations in San Juan). Currently, United Continental carries a Zacks Rank # 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

4. According to data released by the BTS, average airfares (unadjusted) fell 3.5% year over year in August. Moreover, airfares declined 5.5% in August compared with the ticket prices in Jul 2016. In fact, the August reading followed the 4.6% year-over-year decline in July. The fall in average airfares in the U.S. for Jul 2016 was the sharpest in over a year (Read more: Airfares Continue to Plunge: What's in Store for Airline Stocks?).

5. Airline traffic data for June, reported by the BTS, showed that systemwide (domestic and international) scheduled service load factor had increased for the third consecutive month on a seasonally adjusted basis. The metric, which is a measure of the utilization of a carrier’s capacity, came in at 83.6% for June as passenger travel or traffic (measured in revenue passenger-miles) grew faster (0.6%) than the systemwide capacity growth of 0.5%, leading to packed planes. Capacity is measured in average seat miles. Both systemwide traffic as well as capacity touched all-time highs during the month.

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

-1.96%

-0.06%

UAL

-2.58%

-17.78%

GOL

-9.94%

122.48%

DAL

2.53%

-24.92%

JBLU

-0.31%

-14.53%

AAL

-3.81%

-19.14%

SAVE

0.48%

-22.55%

LUV

-1.15%

-18.16%

VA

-0.07%

79.77%

ALK

-4.13%

-20.37%

The table above shows the airline stocks, barring Delta Air Lines DAL and Spirit Airlines SAVE, traded in the red over the past week. Consequently, the NYSE ARCA Airline index decreased 2.38% to $88.37 over the past five trading days. Shares of GOL Linhas declined the most (9.94%), primarily due to its lackluster traffic numbers.

Over the course of six months, the NYSE ARCA Airline index depreciated 1.88%.

What's Next in the Airline Space?

Apart from the usual news updates in the space, investors will be focusing on further news regarding Alaska Air Group’s ALK impending takeover of Virgin America VA. With the meeting with regulators being constructive, the deal is expected to close by the end of the year.


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