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Airline Stock Roundup: LUV's Bleak Q1 RASM View, UAL's Expansion Update & More

It was a week that saw the NYSE ARCA Airline Index declining 4.1% mainly due to the disappointing unit revenue forecast of low-cost carrier Southwest Airlines Co. LUV for the current quarter. The Dallas-based carrier attributed the downbeat forecast to pricing pressure and lower-than-expected demand for air travel due to the timing of the spring break holidays.

Apart from the bleak forecast, airlines were also hurt by the emergence of another nor’easter (Toby) in the Northeast region. In fact, this was the fourth nor’easter to hit the region this month. American Airlines Group Inc. AAL was also in the news over the past five trading days regarding its fleet upgrade efforts.

Moreover, the week saw American Airlines and United Airlines — the wholly-owned subsidiary of United Continental Holdings, Inc. UAL    — issuing updates on their plans to add additional flights in a bid to expand their presence.

Transportation - Airline Industry 5YR % Return

Transportation - Airline Industry 5YR % Return

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(Read the last Airline Stock Roundup for Mar 21, 2018).

Recap of the Past Week’s Most Important Stories

1. Southwest Airlines now expects revenue per available seat mile (RASM: a key measure of unit revenue) to be flat, as against the year-ago figure of 13.23 cents. The projection compares unfavorably to the previous forecast of year-over-year growth between 1% and 2%. However, current customer demand remains strong, according to Southwest. The carrier still continues to expect year-over-year RASM growth in 2018.

Further, the company has lowered its outlook for first-quarter operating expenses per available seat mile (CASM) excluding fuel and oil expense plus profit-sharing expense. Additionally, first-quarter fuel costs are expected to be at approximately $2.10 per gallon (Read more: Airline Stocks Decline on Wednesday's Trading: Here's Why).

2. Airline operations were disrupted when Toby hit the Northeast, resulting in multiple flight cancellations. In fact, the current month has reportedly seen more than 10,000 flights being called off due to successive nor’easters. Notably, it is believed to be the worst March in five years time in terms of flight cancellations (Read more: Airline Operations Disrupted Due to Another Nor'easter).

3. According to a Reuters report  American Airlines has ended its negotiations with Airbus to buy multiple planes, in a bid to upgrade its fleet. Replacing Airbus, as a potential supplier to American Airlines was The Boeing Company BA. American Airlines is reportedly looking to purchase 25-30 new wide-bodied jets. The deal with Boeing might be valued between $7 billion and $8.5 billion.

On a separate issue, American Airlines announced its intention to launch flights to four cities — Georgetown, Guyana, Pereira, Colombia, Cordoba, Argentina, Oaxaca, Mexico and Buenos Aires, Argentina. The new routes will be operational subject to government clearance. Tickets will be available from April 2018.

American Airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

4. The association between United Airlines and Air New Zealand was strengthened when the carriers announced their decision to operate flights connecting Chicago and Auckland. The non-stop year-round flights, operated by Air New Zealand thrice a week, will commence from Nov 30, 2018. Moreover, United Airlines announced that its flights connecting San Francisco and Auckland, which currently operate on a seasonal basis, will fly throughout the year (thrice a week) from April 2019. The service has been expanded to cater to the increased demand.

5. Alaska Air Group’s ALK subsidiary — Alaska Airlines — inked a deal with Irish carrier, Aer Lingus, for providing members of its Mileage Plan more opportunities to earn and redeem miles to Europe. According to the new partnership, the carriers will commence interline availability across their respective networks from April 2018. Aer Lingus currently operates flights connecting Dublin and 13 cities in North America. The carrier will operate flights connecting Seattle and Dublin from May 18, 2018.

Price Performance

The following table shows the price movement of the major airline players over the past week and during the last six months.  






The table above shows most of the airline stocks traded in the red over the past week mainly due to Southwest’s bearish guidance. Over the course of six months, the NYSE ARCA Airline Index appreciated 6.9%, on the back of impressive gains at Gol Linhas Aéreas Inteligentes S.A. GOL.
 

What's Next in the Airline Space?

Investors will look forward to March traffic reports from the likes of Delta Air Lines Inc. DAL in the coming days.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
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