It was a week where major carriers like Southwest Airlines Co. (LUV), JetBlue Airways Corporation (JBLU), Virgin America Inc. (VA), American Airlines Group Inc. (AAL) and United Continental Holdings, Inc. (UAL) revealed their respective traffic numbers for the month of Dec 2014.
While JetBlue Airways and Virgin America recorded a healthy rise in traffic, data released by peers such as United Continental Holdings and American Airlines Group were disappointing. On the other hand, although Southwest’s December traffic experienced a rise, the stock was hurt by the weak unit revenue for December.
Furthermore, United Airlines (the wholly owned subsidiary of United Continental) was also in the news with media reports suggesting that as a cost-cutting measure, the carrier is looking to outsource upto 2000 jobs at 28 airports across the U.S.
The price performance of airline stocks exhibited a mixed trend over the last 5 trading days. The NYSE ARCA Airline index gained a moderate 0.35% over the period. Overall, the airline industry is seeing good times aided by declining oil prices, which plummeted to a 6-year low during the week on fears of oversupply.
(Read the last ‘Airline Stock Roundup’ here: Virgin America Soars on Analysts' Actions, United Airlines Sues Travel Site Founder).
Recap of Most Important Stories of the Last 5 Trading Days
1. United Continental reported a marginal increase in its Dec 2014 traffic. Results were hurt by weak domestic traffic data. Consolidated airline traffic inched up 0.1% year over year to 16.9 billion. Load factor deteriorated to 83.5% from 85.4% in Dec 2013 (read more: United Continental's December Traffic Rises Slightly).
In a bid to reduce costs to keep up with competitors, United Airlines is considering hiring third-party workers for jobs at 28 airports across the U.S. Employees at the concerned airports have already been informed that their jobs will be outsourced going forward. This is not the first time the carrier has resorted to such a move to curtail labor costs. Last year, the carrier had outsourced more than 600 jobs at 12 U.S. airports.
2. American Airlines Group reported disappointing traffic numbers for the month of December hurt by weak international travel. Moreover, the carrier provided a disappointing forecast for consolidated passenger revenue per available seat mile or PRASM (a measure of unit revenue) for the final quarter of 2014. The company expects the key metric to be approximately flat to down 2%. The weak traffic report and the disappointing forecast impacted the stock negatively.
Shares of Southwest Airlines too fell albeit marginally after the company declared that its PRASM for December declined in the range of 4% to 5% on a year-over-year basis (read more: Weak December Traffic Hurts Southwest, American Airlines).
3. Virgin America, which went public late last year, reported healthy rise in traffic in December, thanks to route expansion. Traffic for the month improved 1.5% on a 0.5% capacity increase (read more: Virgin America's December Traffic Up on Route Expansion, Higher Travels).
4. In a bid to expand further and meet the increased demand for air-travel during the summer of 2015, low-cost carrier JetBlue Airways announced its plans to increase its presence in Portland, OR (read more: JetBlue to Expand in Portland, Adds Flights for '15 Summer).
Furthermore, the company reported impressive traffic data for the final month of 2014. Traffic in December improved 5.6% on the back of a 7.2% capacity rise. However, load factor declined 1.3% to 81.6% in the month. The carrier expects PRASM in the final quarter of the year to be flat on a year-over-year basis. The company further expects fuel price per gallon, inclusive of the impact from hedging and fixed forward price agreements, to be $2.70 for the quarter.
5. Latin American carrier GOL Linhas Aereas Inteligentes S.A. (GOL) inked a codeshare agreement with Copa Airlines, the subsidiary of Copa Holdings. Following approval from Brazil's civil aviation authorities and antitrust regulator, the deal will allow fliers to book trips on one airline using frequent flyer miles from another (read more: GOL, Copa Airlines in Codeshare Pact; Approval Awaited).
Performance
The following table shows the price movement of the major airline players over the last 5 trading days and during the last 6 months.
|
Company |
Last 5 trading days |
Last 6 months |
|
HA |
0.09% |
79.46% |
|
UAL |
1.30% |
47.84% |
|
GOL |
-4.90% |
-16.5% |
|
DAL |
-0.70% |
24.69% |
|
JBLU |
-1.90% |
38.28% |
|
AAL |
-4.90% |
17.26% |
|
SAVE |
-5.04% |
10.92% |
|
LUV |
-0.80% |
46.67% |
|
CPA |
4.20% |
-27.92% |
|
ALK |
2.90% |
23.44% |
As the chart above suggests, the performance of airline stocks was mixed over the last 5 trading days. Copa Holdings emerged as the biggest gainer during the period with its shares rising 4.20%. Meanwhile, Hawaiian Holdings witnessed the highest upside (79.46%) over the last six months.
What’s Next in the Airline Biz?
Delta Air Lines (DAL) will kick off the fourth quarter earnings season for airline stocks when it reports on Jan 20, before the commencement of trading. We expect this Zacks Rank #1 (Strong Buy) stock to report higher than expected earnings in the final quarter of the year.
The combination of a favorable Zacks Rank and an Earnings ESP of +1.33% makes us confident of an earnings beat from this airlines behemoth in the final quarter of 2014. In general, we expect airline stocks to continue gaining momentum on the back of weak oil prices.
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