Markets

Airline Stock Roundup: JetBlue Tumbles on Weak Q4 PRASM View, IATA's Bullish Forecast in Focus

The past week saw an array of updates in the airline space, the most eye-catching among them being the International Air Transport Association's (IATA) bullish profitability forecast for the airline industry. The trade association raised its 2015 profitability outlook for the industry to $33 billion (net profit margin of 4.6%) from the earlier projected $29.3 billion. The 2016 view is also encouraging with profitability expected to touch $36.3 billion with a net profit margin of 5.1%.

Long Island City, NY-based low-cost carrier JetBlue Airways Corp. JBLU also featured in the headlines last week, but sadly for the wrong reasons. Shares of the carrier declined despite unveiling impressive November traffic data because of the weak PRASM (passenger revenue per available seat mile, a measure of unit revenue) forecast for the final quarter of 2015.

In addition, a couple of updates emanated from American Airlines Group AAL . The Fort Worth, TX-based carrier, apart from revealing impressive traffic data for November, came up with a customer-friendly move announcing its intention to introduce a new category of seats (Premium Economy) on international flights late next year.

Read the last Airline Stock Roundup for Dec 9, 2015 .

Recap of the Past Week's Most Important Stories

1. Airline stocks are expected to continue their bull run in 2016 as well, as reinforced by the encouraging outlook provided by IATA. Extended Christmas holidays and summer vacations will contribute to traffic. IATA projects 6.7% and 6.9% growth in air traffic in 2015 and 2016, respectively, with load factor or percentage of seats filled by passengers pegged at 80.7%. IATA also believes that 3.8 billion passengers will travel in 2016 (read more: Will Profits in the Airline Space Scale New Highs in 2016? ).

2. JetBlue Airways reported a 14.2% increase in November traffic on a 10.7% capacity expansion. Load factor too increased as traffic growth outpaced capacity expansion. However, PRASM is expected to fall in the fourth quarter in the band of 2% to 3% hurt by the timing of the year-end holiday period, among other factors (read more: JetBlue's November Traffic Up, PRASM Outlook Soft ).

3. In a bid to improve customer satisfaction, American Airlines Group said that it intends to introduce premium economy seats, which will be located behind the business class seats. Following the introduction of the new, roomier seats, the carrier will offer 6 seat categories throughout its fleet.

According to a report appearing in the Los Angeles Times , the number exceeds the count of categories offered by any other U.S.-based carrier. American Airlines also disclosed a 4.3% increase in November air traffic aided by strong travel demand during Thanksgiving. Load factor too increased as a result of capacity contraction (read more: American Airlines Plans Premium Economy on Non-US Flights ).

4. United Airlines, the wholly owned subsidiary of United Continental Holdings UAL , announced that it will discontinue flights connecting Washington Dulles International Airport and Dubai from late Jan 2016. United Airlines' move comes close on the heels of Delta Air Lines' DAL announcement that it will discontinue operations to Dubai from Atlanta effective early 2016 in view of excessive competition from the Middle East carriers (read more: United Airlines to End Dubai-Washington DC Service in Early '16 ).

5. In a bid to expand further, low-cost carrier Southwest Airlines LUV announced that it will start operating daily non-stop flights connecting Los Angeles International Airport (LAX) and Daniel Oduber Quiros International Airport in Liberia/Guanacaste, Costa Rica from April next year (read more: Southwest Airlines to Flag off Flights to Costa Rica ).

On a more somber note, a major accident was averted when a Southwest Airlines plane (Boeing 737 Jet) got stuck in the grass at Nashville International Airport following landing and skid off the taxiway. The incident caused minor injuries to three people, according to a Reuters report. The event is apparently being investigated by the Federal Aviation Administration.

6. According to the U.S. Department of Transportation's Air Travel Consumer report, the on-time arrival rate for carriers (featured in the report) improved to 87% in Oct 2015. The comparable figures were 80% and 86.5% in Oct 2014 and Sep 2015, respectively. Mild October weather this year contributed to the impressive performance by carriers. Delta Air Lines emerged as the top performer for the month with an on-time arrival rate of 92.1%. Hawaiian Holdings Inc. HA closely followed with an on-time arrival rate of 90.7%.

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 -2.68% 62.49%
UAL -1.28% 13.02%
GOL -7.65% -68.53%
DAL 2.42% 26.08%
JBLU -10.56% 18.67%
AAL -4.92% 7.90%
SAVE 7.29% -31.33%
LUV -1.89% 30.40%
CPA -5.88% -42.72%
ALK -3.78% 31.87%

Over the course of last week, the NYSE ARCA Airline index declined 1% to $88.69 as oil prices inched up after dropping to levels not seen since Feb 2009 earlier in the week. The worst performer was JetBlue Airways whose stock shed 10.56% mainly due to the weak PRASM forecast.

Meanwhile, over the last 6 months, the NYSE ARCA Airline index lost 4.82% of its value. Latin American carrier GOL Linhas GOL was the main laggard, as it witnessed a 68.53% price decline. On the other hand, Hawaiian Holdings emerged as the biggest beneficiary on the bourses with its shares advancing 62.49% during the period.

What's Next in the Airline Biz?

With nothing specific lined up, stay tuned for regular news updates. Focus will also remain on the movement of oil prices that are currently hovering below the $40 a barrel mark following the OPEC ruling earlier this month.

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SOUTHWEST AIR (LUV): Free Stock Analysis Report

JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report

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

DELTA AIR LINES (DAL): Free Stock Analysis Report

UNITED CONT HLD (UAL): Free Stock Analysis Report

HAWAIIAN HLDGS (HA): 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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