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Airline Stock Roundup: UAL, AAL’s Bullish Q1 Unit Revenue Views, LUV in Focus

Zacks

Continuing with the trend set by Delta Air Lines, Inc. DAL earlier this month, fellow-airline operators — American Airlines Group Inc. AAL and United Continental Holdings, Inc. UAL — issued upbeat first-quarter unit revenue views over the past five trading days.

We believe that strong demand for air travel contributed to the bullish projections. This apart, quite a few companies including the likes of United Continental’s subsidiary — United Airlines, Southwest Airlines Co. LUV and Allegiant Travel Company ALGT revealed respective traffic data for March. American Airlines’ $12 billion fleet modernization deal with The Boeing Company was another highlight of the week.

Transportation – Airline Industry 5YR % Return


Transportation – Airline Industry 5YR % Return

(Read the last Airline Stock Roundup for Apr 04, 2018).

Recap of the Past Week’s Most Important Stories

1. Southwest Airlines reported impressive traffic results for March. Traffic (measured in revenue passenger miles or RPMs) rose 3.7% to around 11.72 billion, while capacity or available seat miles (ASMs) expanded 2.4% to 13.76 billion. Load factor (percentage of seats filled by passengers) improved 100 basis points (bps) to 85.1% in the month as traffic growth outpaced capacity expansion. (Read more: Southwest Airlines Reports Robust March Traffic Statistics).

2.At United Airlines, traffic increased 6.5% year over year, while capacity expanded 3.8%. Load factor was up 220 basis points to 83.5% owing to higher traffic growth. Moreover, this Zacks Rank #2 (Buy) company now expects first-quarter passenger revenue per available seat miles (PRASM) to increase approximately 2.7%. The Chicago-based carrier’s prior outlook projected a rise between 1% and 3%. Pre-tax margin (adjusted) for the quarter is anticipated to expand around 2%. Previously, the metric was envisioned to be flat year over year.

Additionally, capacity is estimated to grow 3.6% in the first quarter, lower than the earlier view in the band of 3.5-4%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3. American Airlines expects total revenue per available seat mile (TRASM: a key measure of unit revenues) to increase between 3% and 4% year over year in the first quarter of 2018 (previous guidance anticipated the metric to grow in the 2-4% band). Strong demand for air travel coupled with improving yields might have led to the bullish view.

Pre-tax margin (excluding special items) is now anticipated between 4% and 5%, reflecting an improvement from the previous guidance of 2-4%. Despite the bullish views, the stock lost value owing to the surge in oil prices (Read more: Here's Why American Airlines Lost Ground Despite Upbeat View).

4. At Allegiant Travel Company, traffic for the total system, including scheduled service and fixed fee contract, increased 17.7% on a year-over-year basis to 1.28 billion. System capacity improved 13.3% to 1.49 billion in the same month. Moreover, this Las Vegas-based carrier transported 1.37 billion passengers, reflecting an improvement of 18.3% on a year-over-year basis (Read more: Allegiant's March Load Factor Rises on Higher Demand).

5. Latin American carrier, GOL Linhas Aereas Inteligentes S.A. GOL, unveiled an encouraging projection for the first quarter. The carrier expects operating margin of 15-15.5% in the soon-to-be-reported quarter compared with the year-ago figure of 9.6%. EBITDA margin is projected between 20% and 20.5%. The carrier’s March traffic report was also bullish (Read more: GOL Linhas' March Traffic Rises, Upbeat Q1 Outlook Issued).

Price Performance

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

Company

Past Week

Last 6 months

HA

-5.8%

-4%

UAL

-3.9%

0.3%

GOL

3.4%

34.9%

DAL

-3.5%

-1.3%

JBLU

-6.1%

-5.7%

AAL

-9.6%

-10.1%

SAVE

-6.1%

1.7%

LUV

-4.5%

-7.6%

CPA

-5.1%

-4.1%

ALK

-2.7%

-26.6%

The table above shows that almost all airline stocks traded in the red in the past week, resulting in the NYSE ARCA Airline index declining 3.8% to $113.39 over the period. Shares of American Airlines have depreciated the most (9.6%) despite its encouraging unit revenue projection. The upsurge in oil prices led to the decline. This is because of the inverse relationship between oil prices and the value of airline stocks.

Over the course of six months, the NYSE ARCA Airline Index appreciated marginally with GOL Linhas shares appreciating the most (34.9%). Shares of Alaska Air Group ALK lost the maximum value (26.6%) in the same period.

What's Next in the Airline Space?

Investors will look forward to first-quarter earnings reports of Delta (Apr 12) and United Continental (Apr 17) in the coming days.

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