While February traffic results dominated the past week in the airline space, a major event that sent ripples through the industry was the joint complaint filed by three major U.S. carriers – Delta Air Lines Inc. DAL, American Airlines Group Inc. AAL and United Continental Holdings Inc. UAL – to the U.S. government.
The appeal made was against the unfair nature of the subsidies and other benefits enjoyed by the Gulf carriers, which deny a level playing field to the American carriers. They have alleged that the massive government benefits have allowed Gulf carriers like Qatar Airways, Etihad Airways and Emirates to expand their fleet and international operations substantially, and in turn, eat into competitors' market share.
Republic Airways Holdings RJET also grabbed headlines with the announcement that the carrier will now be included in the S&P 600 index. The carrier will replace MAXIMUS in the index after the close of trading today.
Several carriers reported their February traffic numbers over the last five trading days. United Continental Holdings and American Airlines Group reported subdued results while Alaska Air Group Inc. ALK, Southwest Airlines Co. LUV and Virgin America VA witnessed impressive growth.
On the price front, almost all major airline stocks declined over the past 5 trading days. As a result, the NYSE ARCA Airline index fell almost 4% over the said period, in tune with the bearish mood surrounding the broader market, given the strength of the dollar. However, we are not too perturbed by the decline and consider it a short-term phenomenon. We believe industry fundamentals are strong and consequently, stocks in the airline space should gain over the longer term.
(Read the last ‘Airline Stock Roundup’ here: Delta, Gogo in Technology Deal; Southwest, JetBlue Add Flights).
Recap of the Most Important Stories Over the Past Week
1. Massive subsidies enjoyed by three Gulf carriers from their respective governments have come under the attack of major U.S. airline operators – American Airlines Group, United Continental and Delta Air Lines. The American carriers have submitted a 55-page document to support their allegations of unfair competition leveled against their Gulf counterparts (read more: US Carriers Upset Over Gulf Airline Practices).
2. Republic Airways Holdings, the Indiana-based parent company of Chautauqua Airlines, Republic Airlines and Shuttle America, will replace MAXIMUS in the S&P SmallCap 600 after the close of trading today. The news of the inclusion has impacted the stock positively (read more: Republic Airways Enters S&P 600 Index).
Furthermore, Republic Airways’ February air traffic, measured in revenue passenger miles (RPMs), was up 3% year over year at 801 million, on a consolidated basis. Consolidated capacity or available seat miles improved 3% to 1.1 billion during the month (read more: Republic Airways' Air Traffic Improves in February).
3. United Continental Holdings reported flat traffic figures for Feb 2015. Soft domestic travel hurt traffic numbers during the month. United Continental’s February numbers lagged those of California-based low-cost airline Virgin America, which reported a 3.6% increase in traffic during the same period (read more: United Continental February Traffic Hurt by Domestic Travel).
4. Alaska Air Group, the parent company of Alaska Airlines, reported impressive traffic data for the month of February, mainly on the back of increased demand. The company’s consolidated airline traffic moved up 7.9% year over year to 2,328 million (read more: Alaska Air Group February Traffic Rises on Higher Demand).
5. American Airlines Group revealed disappointing traffic for February due to weak performance in the Atlantic division. RPMs for the month declined 0.7% and capacity was down 1.8% on a year-over-year basis. Furthermore, the company said that it expects passenger revenue per available seat mile (a measure of unit revenue) to fall in the band of 2% to 4% in the first quarter of 2015.
6. Hawaiian Airlines, Inc. – a subsidiary of Hawaiian Holdings, Inc. – reported healthy traffic for the month of February. RPMs came in at 1.02 billion, up 1.8% from 1 billion recorded in the comparable month a year ago. On a year-over-year basis, consolidated capacity climbed 4.3% to 1.30 billion (read more: Hawaiian Airlines February Traffic Up on Increased Demand).
7. In line with its international network expansion plans, low-cost carrier Southwest Airlines Co. announced that it will operate daily non-stop flights between Baltimore and San Jose and a seasonal flight between Aruba and Houston every Saturday til Aug 8, 2015 (read more: Southwest Airlines Adds Routes, Expands Global Network).
Moreover, the carrier reported impressive traffic data for the month of February, with RPMs increasing 6% to 7.1 billion. Capacity climbed 3.6% to 9.5 billion. Another important metric, load factor (% of seats filled by passengers) improved 180 basis points to 79.9%. Furthermore, passenger revenue per available seat mile increased 1% for the month on a year-over-year basis.
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 |
2.26% |
22.17% |
|
UAL |
-4.46% |
29.28% |
|
GOL |
-11.13% |
-56.16% |
|
DAL |
-2.39% |
11.27% |
|
JBLU |
-3.49% |
40.03% |
|
AAL |
-3.27% |
24.42% |
|
SAVE |
-2.80% |
5.37% |
|
LUV |
-0.68% |
30.32% |
|
CPA |
-9.26% |
-20.26% |
|
ALK |
-1.17% |
37.42% |
As the chart above suggests, all major airline stocks traded in the red over the past week, with the exception of Hawaiian Holdings, which gained 2.26%, aided by impressive traffic data. On the other hand, most of the stocks have gained over the last six months, with JetBlue witnessing the highest upside (40.03%) over the period.
What’s Next in the Airline Biz?
With no major event lined up over the next five trading days, stay tuned for the usual news updates. Focus will also remain on the response of the U.S. government to the complaint by the U.S. carriers against their Gulf counterparts.
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