It was a week of unrest for airline stocks, which were negatively impacted by the spike in oil prices due to the unrest in Yemen. Oil prices surged due to fears of growing instability in the Middle East following the entry of Saudi Arabia and its allies into the Yemeni civil war.
Higher jet fuel prices mean bad news for the airline industry, given the inversely proportional relation between crude prices and the value of stocks, since fuel costs account for a major chunk of an airline company’s operating expenses. With most airline stocks trending down over the past week, it was no surprise that NYSE ARCA Airline index gained a mere 0.11% over the last 5 trading days.
On the news front, Latin American carrier GOL Linhas Aereas Inteligentes S.A. GOL reported wider year-over-year 2014 net loss due to higher costs. A decline in domestic supply for 2014 also hurt results.
Furthermore, airline behemoth Delta Air Lines DAL and Mexican airline Grupo Aeromexico are looking for a $1.5 billion joint venture (JV) to facilitate fliers between the U.S. and Mexico.
Low-cost airline JetBlue Airways Corp. JBLU also featured in the news over the past five trading days as it experienced a system-wide computer outage resulting in chaos at several airports, subsequently harassing its customers.
Updates have emerged over the last five trading days regarding the tragic crash in France of a plane (9525) operated by Germanwings, the low-cost arm of Deutsche Lufthansa AG DLAKY. A report appearing in the New York Times stated that one of the pilots had left the cockpit prior to the crash and could not re-enter.
(Read the last Airline Stock Roundup for Mar 25, 2015)
Recap of the Most Important Stories Over the Past Week
1. GOL Linhas reported disappointing results for the fourth-quarter and full-year 2014, with wider losses year over year. For 2015, the company expects domestic supply to remain flat year over year. Moreover, the company projects operating margin for the year in the band of 2% to 5% (read more: GOL Posts Wider Q4 Loss Despite Revenue Growth).
The company also revealed traffic numbers for February. Load factor (percentage of seats filled with passengers) came in at 76.2%, down 50 basis points. Domestic load factor declined 40 basis points to 77.1% during the month as domestic demand improved 2.9%. Supply, too, climbed 3.9% on the domestic front during February.
2. Thousands of passengers of JetBlue Airways at various airports were inconvenienced as operations were affected due to a system-wide computer failure at the low-cost carrier. According to media reports, the carrier apologized to the fliers for the harassment, and also said that the issue has been resolved (read more: JetBlue Experiences Massive Computer Outage Resulting in Major Delays).
3.According to a report in The Wall Street Journal, Deutsche Lufthansa expects insurance claim of $300 million following the crash of one of its planes (Airbus A320) – carrying approximately 150 people – in the southern part of France. Furthermore, a report appearing in the New York Times stated that one of the pilots had left the cockpit prior to the crash and could not re-enter.
Reports also suggested that the co-pilot (Andreas Lubitz), who had locked the locked the captain out of the cockpit had deliberately crashed the plane. These reports have caused carriers across the globe to amend rules and make it mandatory for two crew members to be present in the cockpit throughout the flight duration. This practice is already being followed in the U.S. since the Sep 11 terrorist attack.
Per other media reports, Lubitz had suffered from depression during his stint at the flight-training school.
4. Delta Air Lines and Grupo Aeromexico have sought antitrust immunity for their new $1.5 billion joint venture on U.S. to Mexico flights through an application filed with the U.S. Department of Transportation. The carriers aim to further strengthen their partnership with this JV.
Following approval, the JV will broaden options for travelers to both countries to enhance their flying experience. The expansion of the partnership will also see further customer-oriented investments. We note that the two carriers are no strangers to each other.
5. In a bid to expand and improve customer convenience, Alaska Airlines, the wholly owned subsidiary of Alaska Air Group ALK said that from early October this year it intends to operate non-stop flights from Orange County, CA to Los Cabos and Puerto Vallarta, Mexico. The introductory one-way fare for the new daily non-stop service between Orange County and Los Cabos has been kept reasonably low at $138. The corresponding value is $158 for one-way travel between Orange County and Puerto Vallarta.
The carrier stated that passengers willing to avail the low introductory fares must buy their air tickets on or before Apr 6. Moreover, the journey has to be completed by Dec 11, 2015, for passengers availing the low-cost tickets.
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 |
-0.32% |
63.79% |
|
UAL |
-0.01% |
43.73% |
|
GOL |
-15.28% |
-49.48% |
|
DAL |
-1.62% |
24.37% |
|
JBLU |
-1.08% |
81.26% |
|
AAL |
-1.80% |
48.76% |
|
SAVE |
0.90% |
11.89% |
|
LUV |
-0.86% |
31.18% |
|
CPA |
-4.28% |
-5.89% |
|
ALK |
-0.48% |
52.00% |
As the chart above suggests, all major airline stocks with the exception of Spirit Airlines, Inc. SAVE, which gained 0.90%, shed value over the past week primarily due to the rise in oil prices due to Yemen agitations. Furthermore, weak fourth-quarter as well as full-year 2014 results resulted in GOL Linhas’ shares declining the most (15.28%) over the last five trading days. Most of the stocks have gained over the last six months, with JetBlue Airways witnessing the highest upside (81.26%) over the period.
What’s Next in the Airline Biz?
We expect further updates on the Lufthansa plane crash over the next five trading days. Traffic updates from carriers like Delta and Alaska Air Group should also dominate headlines in this period.
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