The past week was a busy one for airline stocks with quite a few updates brimming in the space. On the traffic front, Delta Air Lines DAL and United Continental Holdings, Inc. UAL reported solid numbers for the month of November. Although Southwest Airlines LUV also reported an increase in November traffic — buoyed by increased travel demand owing to Thanksgiving weekend — the weak guidance provided by the carrier with respect to its operating revenue per ASM (RASM) for the fourth quarter rang alarm bells among investors. This percolated to other airline stocks as well, impacting them negatively.
Fears emanating from the Southwest Airlines guidance eroded the gains enjoyed by the airline stocks following the decision of the Organization of the Petroleum Exporting Countries (OPEC) to not curb the output of crude at its meeting in Vienna on Dec 4.
On the price front, the NYSE ARCA Airline index declined 0.9% to $90.69 over the past week, primarily due to Southwest’s guidance. The magnitude of the impact of the projection (made on Dec 8) can be gauged from the 2.71% fall in the index compared with the Dec 7 figure. The airline stocks, which were soaring, courtesy the OPEC verdict, were dealt a cruel blow by the gloomy Southwest Airlines guidance, resulting in a fall in the index.
(Read the last Airline Stock Roundup for Dec 02, 2015).
Recap of the Past Week’s Most Important Stories
1. OPEC’s refusal to curb output turned out to be boon for airline stocks. The gathering of the group's 12 member countries from the Middle East, Africa and Latin America decided that the daily crude production would be approximately 31.5 million barrels (the previous production cap was officially 30 million barrels).
With major airline stocks gaining on the decision, it was no surprise that the NYSE ARCA Airline index gained 2% to close at $92.75 on Dec 4 over the preceding day’s figure (read more: 4 Solid Picks as OPEC's Refusal to Curb Output Boosts Airlines).
The news prompted prices of U.S. crude to plummet to its lowest level in nearly seven years to $37.65 a barrel on Dec 7. Naturally, airline stocks gained further given the inversely proportional relation between crude prices and the value of aviation stocks (read more: Invest in These Airline Stocks as Oil Prices Hit New Lows).
2. Delta Air Lines witnessed an increase in November air traffic. Traffic – measured in revenue passenger miles (RPMs) – came in at 15.6 billion, up 4.6%. More significantly, the carrier revealed a 1.5% improvement in PRASM (passenger revenue per available seat mile) in the month (read more: Delta Air Lines: Thanksgiving Drives November Traffic).
3. Alaska Air Group ALK, the parent company of Alaska Airlines and Horizon Air, revealed a 13% year-over-year increase in November air traffic on a 13.7% capacity expansion. Load factor (% of seats filled by passengers) decreased to 81.7% from 82.3% in Nov 2014 as capacity expansion outpaced the increase in traffic (read more: Alaska Air Group's November Traffic Up, Load Factor Slips).
4. Traffic at United Continental Holdings climbed 4.2% on a year-over-year basis to $15.92 billion in Nov 2015. Moreover, consolidated capacity went up 1.9% to 19.5 billion. Load factor improved 180 basis points to 81.7% as traffic growth outpaced capacity expansion. The Chicago-based company registered a completion factor of 99.3%, with 83.9% of its flights on schedule. The carrier expects average fuel price per gallon (including all cash-settled hedges) in the band of $1.81 to $1.86 for the fourth quarter of 2015.
5. Shares of Southwest Airlines declined 9.02% to $45.04 on Dec 8 following the weak projection for fourth-quarter RASM. The company said that it expects the key metric to be approximately flat to down 1% in the final quarter of 2015 on a year-over-year basis. The carrier had predicted a 1% year-over-year rise in the fourth quarter RASM last month
The bearish RASM guidance overshadowed the strong November traffic report. Traffic improved 13.9% to $9.7 billion. On a year-over-year basis, consolidated capacity increased 9.7% to 11.7 billion. Load factor improved 310 basis points to 83.2% (a record for the month of November) as traffic growth outpaced capacity expansion.
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 |
4.70% |
79.27% |
|
UAL |
2.89% |
11.54% |
|
GOL |
-2.01% |
-65.98% |
|
DAL |
4.91% |
23.45% |
|
JBLU |
1.72% |
38.31% |
|
AAL |
3.46% |
10.46% |
|
SAVE |
3.47% |
-34.50% |
|
LUV |
-5.05% |
30.21% |
|
CPA |
-3.96% |
-40.30% |
|
ALK |
2.43% |
41.17% |
The outcome of the OPEC meeting on Dec 4 was primarily responsible for the gains enjoyed by airline stocks in the past week. While Delta Air Lines gained the most (4.91%), Southwest Airlines was the biggest loser (5.05%) over the past five trading days – courtesy its disappointing RASM projection.
Over the last six months, most airline stocks gained with Hawaiian Holdings Inc. HA emerging as the biggest grosser (79.27%). Latin American carrier GOL Linhas GOL was the biggest loser in the last six months, with its shares shedding 65.98%.
What's Next in the Airline Biz?
We expect November traffic updates from carriers like JetBlue Airways Corp. JBLU in the coming days. Focus will also stay on the movement of oil prices which have been extending their southward journey following the OPEC ruling.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment