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Airline Stock Roundup: AAL’s Investor Update, LUV, UAL’s September Traffic & More


In the past week, American Airlines Group Inc. AAL stated that Hurricane Florence is likely to hurt its third-quarter revenues and pre-tax income by approximately $55 million and $50 million, respectively. This apart, high fuel costs are anticipated to weigh on its third-quarter earnings. Following the update, shares of this airline behemoth tumbled to a 52-week low of $33.55 on Oct 9.

Also, sector heavyweights like Southwest Airlines Co. LUV, United Continental Holdings Inc.’s UAL wholly owned subsidiary United Airlines and Hawaiian Holdings, Inc.’s HA subsidiary Hawaiian Airlines unveiled their respective September traffic figures in the afore-mentioned period.

While load factor (% of seats filled by passengers) declined at Southwest Airlines and Hawaiian Airlines due to capacity expansion outweighing traffic growth, the metric increased at United Airlines owing to higher traffic growth.

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

Recap of the Past Week’s Most Important Stories

1. At Southwest Airlines, traffic (measured in revenue passenger miles or RPMs) rose 5.3% to around 9.99 billion, while capacity or available seat miles (ASMs) expanded 6.8% to 12.41 billion. The company expects fuel costs to be $2.25 per gallon in the third quarter of 2018, results of which should be out on Oct 25 (read more: Southwest Airlines' September Traffic Up, Load Factor Down).

Southwest Airlines carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. Traffic at GOL Linhas Aereas Inteligentes S.A. GOL declined 1% to 2.96 billion in September. On a year-over-year basis, consolidated capacity (or available seat kilometers/ASKs) expanded 1.8% to 3.79 billion. Load factor dipped to 78.1% from 80.2% in the year-ago period due to decrease in traffic, despite capacity expansion. Departures in the month declined 2% (read more: Gol Linhas' September Traffic Down, Unveils Q3 Outlook).

3. At Hawaiian Airlines, traffic increased 5.8% while capacity expanded 9.6% in September.Due to Hurricane Olivia and Typhoon Jebi, the airline trimmed its projections for third-quarter operating revenue per available seat mile (RASM). Currently, RASM is expected to decline between 1.5% and 2.5% (read more: Hawaiian Holdings' Arm Posts Drop in September Load Factor).

4. At United Airlines, traffic increased 6.7% while capacity expanded 6.1% in September. Load factor increased to 81% from 80.5% a year ago. Backed by solid demand for air travel, the company transported 8.5% more passengers in the month. Mainline completion factor increased to 99.4% from 97.3% registered in September 2017.

5. American Airlines expects Hurricane Florence to weigh on its third-quarter unit revenues to the tune of roughly 50 basis points. Notably, the carrier had to cancel roughly 2,100 flights due to weather disruption. Pre-tax margin is expected between 5% and 7%. Moreover, significant rise in fuel prices over the past 12 months is expected to limit bottom-line growth. Fuel cost per gallon is now anticipated between $2.28 and $2.33 (the previous view had projected the metric in the $2.22-$2.27 band). Despite high fuel costs, the carrier expects adjusted total revenue per available seat miles (TRASM: a key measure of unit revenue) to increase year over year between 2% and 3% in the third quarter (the previous view had projected the metric to increase in the 1-3% band). Strong domestic yields contributed to the bullish forecast.

6. SkyWest, Inc. SKYW reported a 4.4% (6,300) year-over-year decrease in block hours (a measure of aircraft utilization) to 138,900 in September. According to this regional carrier, decline in the metric was in sync with its fleet transition plans. Notably, SkyWest’s dual class aircraft (E175, CRJ 900 and CRJ700) accounted for approximately 53.9% of the carrier’s total block-hour production for the month compared with approximately 53.1% a year ago. Load factor improved 10 basis points to 79.6% in September (read more: SkyWest September Block Hours Fall, Load Factor Rises).

Price Performance

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

The table above shows that most airline stocks traded in the red over the past week, resulting in the NYSE ARCA Airline Index declining 4.1%. Over the course of six months, the sector tracker decreased 11.4% due to headwinds like high fuel costs.

What's Next in the Airline Space?

Investors will look forward to third-quarter earnings reports from Delta Air Lines, Inc. DAL and United Continental Holdings on Oct 11 and Oct 16, respectively.

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