The already struggling airline stocks were pushed further on the backfoot after Britain voted to leave the EU on Jun 24. As was widely expected, Britain’s market-jolting decision to quit the EU sent the global stock markets into a tailspin and the airline industry is no exception. Airline stocks have been hit hard with fears of travel demand slackening.
According to the International Air Transport Association, with Brexit (the short way of saying Britain’s exit from the EU) materializing, U.K.’s air passenger market is expected to shrink in the band of 3% to 5% by 2020. In fact, the Brexit decision has worsened matters for U.S. carriers with exposure to Britain.
Apart from the Brexit-induced sell-off, the Dallas-based low-cost carrier Southwest Airlines Co. LUV was a top news maker over the past week when it announced a restructured delivery schedule with respect to Boeing jets. The carrier projects economic fuel price per gallon in the band of $1.80 to $1.85 for the second quarter.
Moreover, the past week saw updates from United Continental Holdings, Inc. UAL and Spirit Airlines SAVE.
On the price front, the NYSE ARCA Airline index declined 5.45% to $78.77 over the past week as chaos and uncertainty prevailed following the disclosure of the results of the U.K. referendum which revealed that 51.9% of the votes were cast in favor of Brexit while 48.1% opposed the notion.
Read the last Airline Stock Roundup for June 22, 2016.
Recap of the Past Week’s Most Important Stories
1. Following the Brexit vote, U.S. airline stocks which were already suffering due to the Orlando shooting, have been pushed further back. The Fort Worth, TX-based American Airlines Group AAL has been a major sufferer with its shares declining in double-digits since the vote as it has high exposure (6.2% of capacity) to the U.K. The 2007 Open Skies Agreement had facilitated the travel of U.S. through the EU apart from encouraging tie-ups with their European counterparts. Now with Brexit materializing, the future direction to be taken by the EU–US Open Skies Agreement is anybody’s guess (read more: 4 U.S. Airline Stocks at Risk as UK Opts for Brexit).
2.At its investor day, Southwest Airlines, which apparently has a more positive outlook on unit revenue compared to its peers, stated that it intends to delay the delivery of 67 new Boeing 737 Max jets by almost six years to manage capital spending. The planes, which were initially expected between 2019 and 2022, will now be delivered between 2023 and 2025. As a result, the company’s capital expenditure will be reduced by $1.9 billion.
3. United Continental Holdings , the parent company of United Airlines, reached an agreement with the labor union (Association of Flight Attendants or AFA), representing its flight attendants. The agreement aims to bring the carrier’s 25,000+ flight attendants into a single work group. However, there is a long way to go before the objective of the agreement is fulfilled. The contract will take shape of a provisional deal following approval from the Joint Master Executive Council, including all Local Presidents (read more: United Continental Reaches a Truce with Labor Union AFA).
4.Good news flowed in at low-cost carrier Spirit Airlines when the company and the International Association of Machinists & Aerospace Workers or IAM ratified a pay-related tentative contract. The deal covers the members of the ramp service team of the low-cost carrier based at Fort Lauderdale-Hollywood International Airport.
5 According to various media reports, Brazil, in a bid to give a lift to its struggling carriers like GOL Linhas GOL, is on its way to allow 100% foreign ownership forits local carriers. To this end, the country’s lower house of Congress recently voted in favor (199-71) of lifting the restrictions on foreign ownership. The bill, however, awaits approval from the Brazilian senate.
Performance
The following table shows the price movement of the major airline players over the past week and during the last six months.
|
Company |
Past Week |
Last 6 months |
|
HA |
3.67% |
0.88% |
|
UAL |
-13.52% |
-34.32% |
|
GOL |
29.66% |
90.69% |
|
DAL |
-10.27% |
-33.54% |
|
JBLU |
-8.61% |
-32.84% |
|
AAL |
-11.16% |
-38.16% |
|
SAVE |
-3.90% |
-0.68% |
|
LUV |
-7.32% |
-15.58% |
|
VA |
-0.11% |
49.12% |
|
ALK |
-7.03% |
-31.48% |
The table shows that most of airline stocks traded in the red over the past week, courtesy of the Brexit vote. Shares of United Continental depreciated the most (13.52%).
Over the past six months, the majority of the airline stocks lost value, leading to a 11.95% decline in the NYSE ARCA Airline index. Shares of American Airlines Group lost the maximum 38.16% over the same period.
What's Next in the Airline Space?
Apart from further updates on the impact of the Brexit vote on airlines, we expect June traffic data from carriers like Delta Air Lines, Inc. DAL and Alaska Air Group, Inc. ALK in the coming days. Moreover, investors will keenly await updates on the impact that the terror attacks on Istanbul airport on Jun 28, leaves on U.S. carriers, especially ahead of July Fourth.
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