The final week of 2015 has been a relatively quiet one for the airline industry. The most eye-catching update came from Chicago-based United Continental Holdings UAL, the parent company of United Airlines. Shares of the carrier gained value on Dec 24, following the news that the leadership of its pilots’ union has accepted the tentative deal pertaining to the extension of the contract with its pilots. The airline’s pilots will now make the final call and vote on the issue shortly. United Continental was also in the news owing to its decision to expand operations in China.
The other important update in the past week, which was a day short of trading owing to the Christmas holiday on Dec 25, pertained to the brutal weather which led to multiple flights being cancelled/delayed. We believe that disruption of flights during the peak festive season will considerably impact air traffic this month for most carriers.
Read the last Airline Stock Roundup for Dec 23, 2015.
Recap of the Past Week’s Most Important Stories
1. More than 12,000 pilots of United Continental will now decide on extending the pay-related contract by two years. This is a direct result of the favorable (13-7) vote received on the issue from the leadership of the carrier’s pilots’ union (Air Line Pilots Association International or ALPA). Following the leadership’s decision to accept the tentative deal, the ball is now entirely in the pilots’ court. The members of the pilots’ union would vote on the tentative contract from Jan 6 through Jan 22, according to a Flightglobal article (read more:United Continental Gains on Positive Labor Update).
According to an AINonlinereport, United Continental intends to add more flights connecting the U.S. and China. The decision followed obstacles encountered by the carrier pertaining to its service to India, with Middle East carriers relentlessly adding capacity. According to a businesstraveller report, the carrier won’t expand its services further in India due to the excessive “unfair” competition faced on the route from Middle East carriers. United Continental, which already offers more non-stop flights to China compared to any other U.S. carrier, aims to expand further in the country despite its ongoing economic slowdown. Increased travel to and from China is the key factor driving this decision. Currently, San Francisco is the carrier’s main hub for its Chinese service. However, United Continental plans to add more U.S. hubs in the future as it aims to expand its operations to China’s secondary cities.
2. Inclement weather conditions led to widespread flight cancellations in and around Chicago recently. Chicago O'Hare International Airport – one of the busiest airports in the world – has been affected the most by the extreme weather conditions. Most Chicago-bound flights faced a similar crisis in Nov 2014 when Northeast snowstorm Cato significantly affected travel plans of a large number of fliers. To counter the effect of the calamity, carriers like American Airlines Group AAL and United Airlines waived off re-booking charges for fliers while Delta Air Lines Inc. DAL offered flexible travel plans to passengers (read more: Flights in Chicago Hit by Weather Woes, Over 1600 Called Off).
3. The closing week of the year brought in good news for the low-cost carrier Southwest Airlines LUV on the labor front. The company inked a tentative deal with Transport Workers Union Local 555, the union that represents more than 12,000 Ground Operations, Provisioning, and Cargo Agents of Southwest Airlines. Although a positive development, there is still a long way to go before the management can claim victory on the issue. Following the agreement in principle, the tentative deal will now have to be ratified. In the event of the ratification vote being favorable, more than four years of negotiations between the parties will end on a happy note. The new contract will be amendable in 2021. In the scenario of the deal materializing, the pay structure and other benefits of the workers would improve substantially.
4. In a customer friendly move, California-based low-cost airline Virgin America VA, partly owned by British billionaire investor Richard Branson, inked a codeshare agreement with China Southern Airlines. The move is aimed at further smoothening ticket reservations and travel between China, Southeast Asia and multiple Virgin America destinations across the U.S. We note that China Southern is the only carrier offering non-stop service between Guangzhou and Wuhan and the U.S. The pact permits a one-stop booking process, a single ticket and one-stop check-in for the entire trip.
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 |
-0.66% |
57.47% |
|
UAL |
2.05% |
11.87% |
|
GOL |
-12.12% |
-75.53% |
|
DAL |
1.20% |
27.0% |
|
JBLU |
0.0% |
12.81% |
|
AAL |
2.09% |
8.91% |
|
SAVE |
2.17% |
-31.63% |
|
LUV |
2.30% |
34.0% |
|
CPA |
-2.9% |
-39.29% |
|
ALK |
1.22% |
28.46% |
Over the course of last week, the NYSE ARCA Airline index declined marginally to $89.57. The worst performer was GOL Linhas GOL whose stock shed 12.12% due to the ongoing economic weakness in Brazil and currency headwinds.
Meanwhile, over the last 6 months, the NYSE ARCA Airline index lost 4.7% of its value. GOL Linhas was again the main laggard, as it witnessed a 75.53% price decline. On the other hand, Hawaiian Holdings emerged as the biggest beneficiary on the bourses with its shares advancing 57.47% during the period.
What's Next in the Airline Biz?
We expect December traffic updates from carriers like Alaska Air Group ALK and Delta in the coming days. Focus will also remain on the movement of oil prices that are currently hovering below the $40 a barrel mark.
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