US Carriers Cancel Flights as FLL Shooting & Storm Wreak Havoc

Major airline stocks like Delta Air Lines DAL and American Airlines Group AAL announced the cancellation of multiple flights as two incidents in the U.S. upset most travel plans in the last few days.

Fort LauderdaleAirportShooting

In a tragic incident, at least 5 people lost their lives and many were injured when a man, subsequently nabbed and identified as Esteban Santiago, opened fire in the baggage claim area of Terminal 2 (where Delta Air Lines operates) of the busy Fort Lauderdale-Hollywood International Airport ("FLL").

According to a report appearing in the Associated Press , the shooter was once part of the U.S. army but was demoted and removed owing to his unsatisfactory performance. The gunman was apparently being treated for psychological disorder and had arrived at FLL on a flight operated by Delta.

Following the tragedy, U.S. carriers like Delta, JetBlue Airways JBLU , United Continental Holdings UAL and Southwest Airlines LUV offered condolences and temporarily suspended operations at the airport. To compensate for the harassment to passengers, many carriers announced " travel waivers ."

The incident is being thoroughly investigated to find out whether only Santiago is behind this dastardly act or it is yet another act of terrorism. Irrespective of the findings, however, the incident has highlighted the need for stricter vigil at airports.

We remind investors that acts of terrorism had hurt airline stocks last year owing to rising concerns about security amid multiple such incidents. Terrorist attacks have the potential of hurting carriers by reducing the demand for travel due to security fears going forward too. However, only time will tell whether the incident at FLL has an adverse impact on airlines in the long term.

Winter Storm

Adding to the woes of carriers, a recent natural calamity led to the cancellation of multiple flights as well. According to a Bloomberg report , an icy winter storm ravaged through southeast U.S. cities. The storm threw disrupted the flight schedules of airlines, causing undue harassments to passengers.

Delta Air Lines and American Airlines suffered the most as the storm. The areas worst affected by the storm were Delta's largest hub, Atlanta, and American Airlines hub at Charlotte, NC. Other U.S. carriers like Southwest Airlines also issued travel waivers pertaining to flights to and from the affected areas.

What's in Store for Carriers in 2017?

Although the start to 2017 has not been encouraging for U.S. carriers, thanks to the above mentioned events, we note that airlines are better poised for growth than the previous year. Carriers had ended 2016 on a favorable note after struggling for most of the year due to multiple headwinds like labor strife, technological glitches, unit revenue issues and declining travel demand due to security fears stemming from increased terror attacks.

Transportation - Airline Industry 5YR % Return

Transportation - Airline Industry 5YR % Return

While weather-related disruptions like the storm are beyond control and are bound to adversely impact operations of airlines every now and then, we expect aviation players to tighten security to avoid incidents like the one at FLL.

The improvement witnessed by carriers toward the end of 2016 was mainly due to the recent bullish forecasts by the companies pertaining to the key unit revenue metric - RASM (operating revenue per available seat mile). While declining unit revenues had hurt carriers for quite some time, many of them are well on track to achieve unit revenue growth in 2017. For instance, Delta's passenger unit revenue was flat for December. The metric is expected to decline 2.5% to 3% in the fourth quarter, which is a much more favorable reading than the earlier projection of a decline of 3% to 5%.

American Airlines now expects total revenue per available seat mile (TRASM) for the fourth quarter in the band of decline of 1% to an increase of 1%. The view represents a marked improvement from the earlier guidance, when the metric was expected to decline in the band of 0.5%-2.5%.

Hawaiian Holdings HA expects fourth-quarter RASM to grow in the range of 3% to 6%. Earlier, the company had anticipated an increase of 0.5% to 3.5%. Hawaiian Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Decline in air fares this year has been considered by many as one of the reasons behind unit revenue woes. However, the rise in oil prices increases the scope to raise ticket prices, thereby boosting revenues.

The improvement in the Zacks industry rank of the Transportation-Airline division to 27 (out of more than 260 groups) from the 200+ rank carried a few months ago also bears testimony to the bright outlook for carriers in 2017 despite the adversities faced early in the year.

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Southwest Airlines Company (LUV): Free Stock Analysis Report

JetBlue Airways Corporation (JBLU): Free Stock Analysis Report

Delta Air Lines, Inc. (DAL): Free Stock Analysis Report

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United Continental Holdings, Inc. (UAL): Free Stock Analysis Report

American Airlines Group, Inc. (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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