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Airline Stock Roundup: Global Travel Alert Hurts Carriers; Delta, United Continental in Focus

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The aftermath of the Nov 13 terror attacks in Paris, which claimed over a hundred lives apart from injuring many, refuses to die down. Other acts of terror prior to that, like the bombing of a Russian plane flying over Egypt, have made the possibility of such deadly attacks even more potent. In view of this grim backdrop, the U.S. State Department issued a worldwide travel alert for U.S. citizens on Monday.

The alert, which was the most eye-catching update in the space over the past week, adversely impacted the overall travel industry, which includes airline players. Moreover, the timing of the alert is also unfavorable as it comes just ahead of the otherwise travel-busy Thanksgiving week.

This apart, the other major updates in the airline space included the tentative labor deal inked by United Continental Holdings UAL , the parent company of United Airlines, with its pilots' union and Delta Air Lines' DAL decision to increase its stake in the Mexican carrier Grupo Aeromexico S.A.B. de C.V.

On the price front, the NYSE ARCA Airline index inched up 1.1% over the past week. However, the negative impact of the travel alert on airline stocks can be gauged from the 2.4% decline in the index on Nov 24 to $90.89 compared to the Nov 23 figure of $93.11.

(Read the last Airline Stock Roundup for Nov 18, 2015 ).

Recap of the Past Week's Most Important Stories

1. In a bid to bolster its presence in Latin America, Delta Air Lines announced its intention to increase its stake in Grupo Aeromexico S.A.B. de C.V. Delta aims to more than double its current holding in the Mexican carrier (read more: Delta to Boost Aeromexico Stake for Latin American Expansion ).

2. United Continental Holdings received encouraging news on the labor front with the company reaching "an agreement in principle" with its pilots' union (Air Line Pilots Association International or ALPA) to extend the agreement by two more years. The Chicago-based carrier reached the tentative deal with ALPA, which covers 12,000+ pilots at United Continental, more than a year before the current deal is scheduled to expire (in early 2017). The tentative agreement can be viewed as a positive development for United Continental, which saw a change at its helm recently. In Sep 2015, Jeff Smisek was replaced by Oscar Munoz as the company's chief executive officer (CEO). Even though Munoz is currently on medical leave, with Brett Hart temporarily in charge, the tentative deal is being deemed by market watchers as a result of the new CEO's efforts to improve labor relations. This marks a significant achievement for the company on the labor front, as Smisek's tenure had been characterized by frequent problems on the issue.

In a separate development, United Airlines struck a deal with Italy-based coffee firm, IllyCaffe, to offer premium blend coffee at its lounge and on board. Beginning next month, Illy dark roast and espresso will be served in United Club lounges in the U.S. airports replacing the FreshBrew brand (read more: United Airlines, IllyCaffe Unite to Boost Customer Experience ) .

3. The U.S. State Department issued a global travel alert to U.S. citizens citing the possibility of more terrorist attacks following the one in Paris and recent barbaric events worldwide. The alert, issued on Nov 23, 2015, is valid through Feb 24, 2016. Although the department does not advise citizens against traveling, the advisory does ask them to be more vigilant, especially in crowded places or while using any mode of transportation. The alert comes close on the heels of the discovery of an explosive belt near Paris and the mobile phone of a fugitive who is believed to have taken part in the Nov 13 attacks in the City of Light. The alert asks traveling U.S. citizens to take certain precautionary measures like following instructions provided by local authorities, staying in touch with family members, and registering with the department's Smart Traveler Enrollment Program. Naturally, the alert, which comes ahead of the busy Thanksgiving week, has badly hit the travel industry, including airline stocks. Carriers such as Spirit Airlines SAVE , Delta, American Airlines Group AAL and United Continental shed value following the alert.

4. Germany's Deutsche Lufthansa Aktiengesellschaft DLAKY , which has been constantly plagued by labor issues, looked slightly relieved with a Bloomberg report stating that its cabin crew has called off a strike that was scheduled for later this week. According to the report, Independent Flight Attendants Organization (UFO) cabin crew union may reach an agreement with the carrier by Dec 2 on the dispute pertaining to retirement and pension benefits. A meeting (employment summit) of the carrier with unions including representatives of pilots and ground crew is scheduled for that date. The German carrier and the UFO will enter arbitration regarding crew contracts as per report.

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 5.11% 59.03%
UAL -1.71% 9.4%
GOL 3.67% -62.7%
DAL -1.49% 12.88%
JBLU 0.36% 29.55%
AAL -2.94% -0.79%
SAVE 0.0% -40.6%
LUV -0.63% 28.42%
CPA 11.68% -36.11%
ALK 2.66% 27.63%

As the chart above indicates, most of the key airline stocks traded in the green over the past five trading days. However, the gains were muted mostly due to the global travel alert which hit the stocks hard. While Copa Holdings gained the most, American Airlines shed the most over the past week. Likewise, most of the airline stocks gained over the last six months with Hawaiian Holdings HA leading the way. Latin American carrier GOL Linhas Aereas Inteligentes S.A. GOL was the biggest loser during the period.

What's Next in the Airline Biz?

Apart from the investor day presentation of Hawaiian Holdings which is scheduled for Dec 2, investors are expected to remain glued to further travel related updates, if any, which will tend to impact stocks in the space. Moreover, it is likely to be a busy week for carriers ahead with the Thanksgiving week in progress. Stay tuned for further updates on the issue.

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GOL LINHAS-ADR (GOL): Free Stock Analysis Report

DELTA AIR LINES (DAL): Free Stock Analysis Report

UNITED CONT HLD (UAL): Free Stock Analysis Report

SPIRIT AIRLINES (SAVE): Free Stock Analysis Report

HAWAIIAN HLDGS (HA): Free Stock Analysis Report

LUFTHANSA -ADR (DLAKY): Free Stock Analysis Report

AMER AIRLINES (AAL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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