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Airline Stock Roundup: UAL’s Raised Q4 PRASM View, DAL’s Traffic Report & More


There were quite a few updates in the airline space over the past week with key players like Delta Air Lines DAL, Southwest Airlines LUV and United Continental Holdings UAL unveiling their respective traffic numbers for December 2017. More than the traffic reports, focus was on the projections for the fourth quarter.

While Delta increased its guidance for non-fuel unit costs mainly owing to the power outage at the Atlanta airport, United Continental provided an improved outlook for passenger revenue per available seat miles (PRASM: a key measure of unit revenue). In fact, stronger yields and better close-in demand contributed to United Continental’s improved outlook. Delta will kick off the fourth-quarter earnings season for the airline space on Jan 11.

On the non-traffic front, airlines were laid low by another winter storm — Grayson. As a result, the key airline players like United Continental and JetBlue Airways JBLU had to cancel multiple flights.

Transportation – Airline Industry 5YR % Return

Transportation – Airline Industry 5YR % Return

(Read the last Airline Stock Roundup for Jan 3, 2018).

Recap of the Past Week’s Most Important Stories

1. At Delta, consolidated traffic — measured in revenue passenger miles (RPMs) — came in at 16.73 billion, down 0.4% year over year. Consolidated capacity (or available seat miles/ASMs) inched up 0.9% to 19.87 billion on a year-over-year basis. Consolidated load factor or percentage of seats filled by passengers fell 110 basis points to 84.2%.

The company now anticipates fourth-quarter non-fuel unit costs including profit sharing to be up approximately 5.5% (previous view was in the range of 5-5.5%) (Read more: Delta Reports Dismal December Traffic, Raises Q4 Costs View).

2. On Jan 4, airline operations were severely disrupted as Grayson wreaked havoc. The storm battered the East Coast, causing heavy snowfall accompanied by wind gusts in excess of 50 mph in the affected areas. With the storm disrupting normal life, it is of little wonder that travel plans were thrown haywire (Read more: Grayson Disrupts Airline Operations, What's on the Radar?).

3. At Southwest Airlines, RPMs increased 2.6% year over year to 10.71 billion in December. Meanwhile, ASMs climbed 1.8% to 12.87 billion. Load factor improved 70 basis points to 83.3% in the same month as traffic growth outpaced capacity expansion. The company still expects fourth-quarter operating revenues per ASM (RASM) to increase between 1% and 2%.

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

4. At United Continental, RPMs increased 2.7% while ASMs expanded 3.7% in December. Load factor declined 80 basis points to 82.3% in the same month as traffic growth was outpaced by capacity expansion. The company now expects fourth-quarter PRASM to be flat year over year (previous guidance had projected the metric in the band of down 2% to flat).

Pre-tax margin (adjusted) is expected between 6% and 7% (previous guidance had projected the metric in the band of 3% to 5%). Non-fuel unit costs (excluding profit sharing) is now projected to grow between 1.5% and 2% (previous guidance had projected the metric to grow in the band of 2.5% to 3.5%). Fuel cost per gallon is now projected to be $1.91 (earlier guidance: $1.8 to $1.85)

5. Traffic at GOL Linhas GOL increased 8.2% in December. On a year-over-year basis, consolidated capacity expanded 5.5%. Capacity improved 4.5% and 14.5% on the domestic and international fronts respectively. Consolidated load factor improved 200 basis points to 81% in the month as traffic growth outpaced capacity expansion.

6. Hawaiian Holdings’ HA wholly owned subsidiary, Hawaiian Airlines, reported impressive traffic figures for December. RPMs increased 3.9% while ASMs expanded 3.5%. Also, load factor improved 30 basis points to 84.4% as traffic growth outweighed capacity expansion (Read more: Hawaiian Holdings' December Traffic Robust, Guidance Revised).

Price Performance

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

The table above shows that majority of the airline stocks traded in the red over the past week. Consequently, the NYSE ARCA Airline Index declined 1.5% to $115.03.

Over the course of six months, the NYSE ARCA Airline Index depreciated 4.1%, despite impressive gains at Latin American carrier GOL Linhas (80.8%). Shares of Alaska Air Group ALK depreciated the most (24.1%) over the period.

What's Next in the Airline Space?

Investors will keenly await Delta’s fourth-quarter earnings report tomorrow. Few other December traffic reports are also expected in the coming days.

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