The past week saw U.K.-based carrier British Airways suffering a major IT system failure that resulted in the cancellation of flights and untold miseries to passengers. Also, updates (albeit of a mixed nature) on the laptop ban extension on U.S. flights grabbed headlines.
Delta Air Lines DAL also made news in the past week, that was a day short of trading owing to the Memorial Day holiday on May 29, as it aims to ease U.S.-Mexico air travel through its association with Aeromexico.
On the earnings front, European low-cost carrier Ryanair Holdings plc RYAAY reported modest results in fiscal 2017 (ended Mar 31, 2017) and issued a cautious outlook for fiscal 2018.
(Read the last Airline Stock Roundup here).
Recap of the Past Week’s Most Important Stories
1. Delta strengthened its long-standing partnership with Mexico’s largest airline Grupo Aeromexico by implementing a joint cooperation agreement (JCA) to operate flights connecting the U.S. and Mexico.
As part of the JCA, the carriers recently stated their intention to launch five flights targeting new markets. Apart from adding new routes, the carriers aim to increase the frequency of flights and use more modern aircrafts in four and two markets, respectively. The measures aimed at facilitating travel between the nations (likely to be implemented as early as this fall) are subject to government clearance. (Read more: Delta Air Lines & Aeromexico Aim to Ease US-Mexico Travel).
2. Earlier this week, it was reported that the U.S. Homeland Security Secretary John Kelly had said in an interview that passengers may be banned from carrying laptops in all flights to/from the U.S. However, a Politico report on May 30 stated that the US had decided against banning laptops from the cabins of US bound planes from Europe as of now.
3. Ryanair Holdings reported financial and operating numbers with net profit for fiscal 2017 up 6% year over year at €1,316 million despite a 13% decline in average airfares. The top line expanded 2% to €6,648 million on the back of a 13% rise in traffic to 120 million. Lower costs aided the bottom line. Moreover, load factor increased 100 basis points to 94%.
The customer friendly “Always Getting Better (AGB)” program aided results. The carrier issued a “cautious” outlook for fiscal 2018 following anticipation of negative Brexit-related developments and repetition of terror attacks. Average fares are expected to decline in the band of 5–7% in fiscal 2018. Net profit for fiscal 2018 is expected in the band of €1.4–€1.45 billion, up approximately 8%.
The low-cost carrier expects ancillary sales to account for 30% of the top line by Mar 2020. The company is looking to expedite the growth of its fleet by including more Boeing jets. Ryanair sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
4. Passengers at British Airways had to undergo undue harassments as the largest carrier in the U.K. (in terms of on fleet size) encountered a major IT system failure, resulting in cancellation of multiple flights. The global disruption was apparently caused by “an exceptional power surge,” which caused the IT system to collapse resulting in the catastrophe.
Whatever be the reason, the meltdown affected travel plans of thousands of passengers with chaos at Heathrow and Gatwick airports. The airline, which is investigating the incident, said that it will compensate the concerned passengers. However, costs on that front may exceed the £100 million mark.
5. According to a Bloomberg report, American Airlines Group AAL intends to curtail the legroom for passengers on its newest Boeing 737 planes. By trimming the space between rows more seats/passengers can be accommodated, thereby allowing it to sell more low-priced tickets. It is widely believed that the move is aimed at countering the threat posed by low-cost carriers like Spirit Airlines SAVE and JetBlue Airways Corp. JBLU.
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 |
-0.90% |
-3.51% |
|
UAL |
0.62% |
14.94% |
|
GOL |
7.7% |
57% |
|
DAL |
0.8% |
1.83% |
|
JBLU |
0.3% |
12% |
|
AAL |
4% |
3.3% |
|
SAVE |
0.21% |
-4.5% |
|
LUV |
0.05% |
27.6% |
|
CPA |
1.13% |
25.33% |
|
ALK |
-0.22% |
4.3% |
The table above shows that majority of airline stocks traded in the green over the past week resulting in the NYSE ARCA Airline Index gaining almost 1% $113.33 over the period. The uptick was primarily driven by the decline in oil prices following the extension of supply curbs by top producers led by OPEC.
The fall in oil prices naturally boosted airline stocks. Over the course of six months, the NYSE ARCA Airline Index appreciated 8.23%. Shares of GOL Linhas GOL appreciated the most (57%).
What's Next in the Airline Space?
Focus will remain on May traffic reports from the likes of Delta and Hawaiian Holdings HA in the coming days. Investors would also await further updates on the laptop ban.
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