Airline Stock Roundup: November Traffic Data Grab Spotlight; HA & LUV Disappoint

In the past week, key airline players like Southwest Airlines LUV, United Continental Holdings’ UAL subsidiary — United Airlines — and Hawaiian Holdings’ HA subsidiary — Hawaiian Airlines — revealed the respective traffic data for November.

United Airlines’ traffic report was impressive, with load factor (% of seats filled by passengers) increasing for the seventh consecutive month. However, this key metric declined at Hawaiian Airlines and Southwest Airlines as capacity expansion outweighed traffic growth for the month.

Hawaiian Airlines also trimmed its unit revenue projection for the fourth quarter of 2018 due to sluggish demand in its Neighbor Island network, especially to Hawai'i Island, as well as weak market pricing on its North America routes. Meanwhile, at its investor day, the carrier stated that capacity for 2019 is expected to grow between 1.5% and 4.5% (the metric is projected to expand 5.5%-6.5% in 2018).

Additionally, the International Air Transport Association (“IATA”) revealed encouraging global traffic data for the month of October. On the non-traffic front, Delta Air Lines DAL announced plans to launch additional flights from Boston next year. The Atlanta-based carrier also tightened its policy on emotional support animals. The company stated that on flights longer than eight hours passengers cannot be accompanied by an emotional support animal. Moreover, service and support animals under four months of age will not be allowed on Delta flights.

(Read the last  Airline Stock Roundup for Dec 05, 2018).

Recap of the Past Week’s Most Important Stories

1. At Hawaiian Airlines, traffic (measured in Revenue Passenger Miles or RPMs) increased 2.8% to 1.37 billion in November. Available Seat Miles (ASMs) also climbed 5% to 1.62 billion. Meanwhile, load factor contracted 180 basis points to 84.1%. The carrier now anticipates revenue per ASM (RASM: a key measure of unit revenue) to decline 3-5% year over year (earlier view: down 2.5% to up 0.5%) (read more: Hawaiian Holdings Arm Posts Nov'18 Traffic, Cuts Q4 RASM View).

2. November traffic at Southwest Airlines increased 4.9%, while capacity expanded 6.5%. Woes pertaining to capacity overexpansion are not new to this Zacks Rank #3 (Hold) stock. Ever since the unfortunate accident on one of its flights in April 2018, this low-cost carrier has been suffering due to capacity overexpansion on. As a result, load factor has declined in every month from May (read more: Southwest's Load Factor Declines Again in November).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3. Load factor at United Airlines expanded 120 basis points to 83% as traffic growth (7.1%) outpaced capacity expansion (5.5%).  At the end of the first 11 months of 2018, the carrier registered a 6.4% increase in RPMs, while ASMs climbed 4.8%. As a result, load factor improved 130 bps to 83.7%. Meanwhile, this Chicago-based carrier posted an on-time performance of 66.9% and a completion factor of 99% for November (read more: United Airlines Reports Increase in November Load Factor).

4. In a bid to strengthen its operations at the Boston Logan International Airport, Delta has decided to add four non-stop routes from this airport in 2019. The new destinations from Boston are Chicago O'Hare; Newark, NJ; Washington, D.C. (Reagan) and Cleveland, OH. While the flights connecting Boston and Cleveland will start operating from Apr 1, 2019, the ones to Chicago, Newark and Washington will take to the skies from Sep 9 (read more: Delta to Expand Boston Operations by Adding 4 Routes).

5. The monthly data released by the IATA revealed a 6.3% year-over-year increase in demand for air travel across the globe for the month of Oct 2018. The uptick was attributable to an increase in both international and domestic traffic (measured in revenue passenger kilometers) in the month. The report also revealed a 6.3% rise in capacity (measured in available seat kilometers). With traffic growth matching capacity expansion, load factor was flat at 81.3% in October.

Impressively, traffic improved significantly in October from the eight-month low reading of 5.5% registered in September.

6. At Allegiant Travel Company ALGT, traffic for the total system (including scheduled service and fixed fee contract) increased 10.1% on a year-over-year basis. Also, system capacity expanded 12.2%. Meanwhile, load factor declined to 80% as traffic growth was outweighed by capacity expansion (read more: Allegiant's November Traffic Rises, Load Factor Down).

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 that all airline stocks traded in the red over the past week. Notably, the NYSE ARCA Airline Index declined 5.2% to $98.14 over this time period.  The decline can be attributed to the decision of OPEC members and their allies to reduce oil production from January. Fears related to capacity overexpansion, following the decline in load factor at Southwest Airlines, Allegiant Travel and Hawaiian Airlines may also have induced the sector tracker to decline over the past five trading days.

Over the course of six months, the NYSE ARCA Airline Index appreciated 4.8%. Shares of GOL Linhas Aéreas Inteligentes S.A. GOL have gained the most (49.8%) during this period.

What's Next in the Airline Space?

We expect November traffic reports from the likes of Alaska Air Group ALK in the coming days.

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
 
Allegiant Travel Company (ALGT) : Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
 
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