The Thanksgiving holiday period hasn’t been very eventful for the airline space. However, a few developments concerning big names like American Airlines Group AAL and United Continental Holdings UAL are worth a mention.
In line with the efforts to expand its presence, American Airlines announced its intentions to start operating additional flights to Canada. Also, United Continental’s subsidiary — United Airlines — stated that it performed exceeding well in the Thanksgiving travel week, with respect to many key metrics like on-time performance.
Meanwhile, the long-standing dispute between U.S. carriers and their Gulf counterparts got uglier with Etihad reportedly voicing concerns over a provision in the Senate’s tax-reform bill. According to the provision, certain foreign carriers including the likes of Etihad would have to pay U.S. corporate tax under certain conditions.
We note that major U.S. carriers like Delta Air Lines DAL, American Airlines and United Continental had complained to the U.S. administration that the massive subsidies and other benefits enjoyed by the three state-owned carriers — Qatar Airways, Etihad and Emirates — are unfair as they deny a level playing field to the carriers in the United States.
Also, according to the Air Travel Consumer Report released by the U.S. Department of Transportation (DOT), service-related complaints from customers in April 2017 were comparatively more than that in April 2016 and March 2017.
(Read the last Airline Stock Roundup for Nov 22, 2017).
Recap of the Past Week’s Most Important Stories
1. On Nov 16, the $1.5-trillion tax-reform bill was passed by the House Republicans by a vote of 227 to 205. This further threatens to ignite the dispute between U.S. carriers and their Gulf counterparts. A provision, introduced by Johnny Isakson — a senator from Delta’s home state Georgia — might hit the pockets of some foreign carriers hard.
According to the proposal, some foreign carriers will have to pay U.S. corporate taxes on their income earned in the United States. However, two conditions need to be fulfilled. These include the absence of a reciprocal tax agreement between the United States and the country where the foreign carrier is based and second, less frequent flights from the United States to the concerned nation (less than two weekly departures/arrivals by U.S. carriers). In the next few days, the tax cut bill will be debated and voted upon by the full Senate.
2. In a bid to expand its operations, American Airlines announced that it intends to add flights to Canada from its hub at Chicago O'Hare International Airport, next year. Toward this end, the carrier aims to start operating daily flights to Vancouver from May 4, 2018.
Moreover, flights on a seasonal basis to Calgary are expected to be operational from June 7, 2018. American Airlines also intends to increase frequencies from the U.S. East Coast to Eastern Canada apart from extending seasonal service to popular destinations in Canada. American Airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3. It hasn’t been a successful 2017 for United Airlines so far due to various issues like the infamous David Dao incident. But, recently the company has something to cheer for. The carrier performed exceedingly well in the Thanksgiving travel week (Nov 19 to Nov 26) smashing various records. For example, with respect to on-time departures the company established a company record of 89.1% on Thanksgiving Day. The next day United Airlines improved the record with the measure rising to 89.8%.
4. According to the June Air Travel Consumer Report released by the DOT, the rate of cancelled scheduled domestic flights increased to 1.6% in April 2017 from 0.9% recorded a year ago. The figure, however, compared favorably to the reading of 1.8% in March 2017.
According to the report, 78.5% flights operated by U.S. carriers (mentioned in the report) arrived on time in April 2017. This represents a deterioration from the comparable figures of 84.5% a year ago and 79.9% in March. Hawaiian Holdings HA secured the top spot with 88.8% of its flights arriving on time in April. The carrier was followed by United Continental and Alaska Air Group ALK.
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 |
4.4% |
-21.1% |
|
UAL |
3.4% |
-25.9% |
|
GOL |
10.9% |
92.2% |
|
DAL |
1.5% |
0.4% |
|
JBLU |
0.7% |
-12.3% |
|
AAL |
3.9% |
1% |
|
SAVE |
7.5% |
-27.9% |
|
LUV |
2.7% |
-7.4% |
|
CPA |
2.6% |
21.1% |
|
ALK |
1.4% |
-22.3% |
The table above shows that all airline stocks traded in the green over the past week leading to a 1.7% gain in the NYSE ARCA Airline index to $111.72. Shares of GOL Linhas GOL have gained the most (10.9%). Over the course of six months, the NYSE ARCA Airline index depreciated 3.1%. Shares of Spirit Airlines SAVE have declined the most (27.9%) in the same period as a result of multiple headwinds.
What's Next in the Airline Space?
Over the next few days, focus will be on the fate of the tax cut bill and the resultant impact on the dispute between U.S. carriers and their Gulf counterparts. Investors would also look forward to November traffic reports of the likes of Delta. Hawaiian Holdings’ investor day, scheduled on Dec 5 is also expected to receive attention.
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