Airline Stock Roundup: Delta's Q3 View Encouraging, Southwest & American Airlines In Focus

Last week, airline behemoth Delta Air Lines DAL issued an outlook with respect to passenger unit revenue and operating margin for the third quarter of 2017, showing a less severe-than-expected impact of the Hurricane Irma. The stock gained on issuance of the view.

Meanwhile, Southwest Airlines LUV issued a grim outlook for the third quarter owing to the hurricanes and the earthquake in Mexico. These natural calamities also forced the airline to cancel approximately 5,000 flights.

Notably. American Airlines Group AAL also featured in the headlines by virtue of its bullish Investor Day presentation.

On the price front, the NYSE ARCA Airline Index increased 4.9% at $112.69 over the past week, on the back of Delta's encouraging commentary.

Transportation - Airline Industry 5YR % Return

 

Transportation - Airline Industry 5YR % Return

(Read the last Airline Stock Roundup here).

Recap of the Past Week's Most Important Stories

1 Delta expects passenger unit revenue to increase approximately 2% in the third quarter of 2017 on a year-over-year basis. The guidance includes a negative impact of Irma to the tune of 1 point. Operating margin for the third quarter is projected between 15.5% and 16.5% Hurricane Irma is likely to impact the metric to the tune of approximately 120 million.

In September 2017, Delta had projected passenger unit revenue to increase between 2% and 3%, and operating margin was forecast in the 16.5%-17.5% range. Those projections were made before Irma disrupted its operations leading to cancellations of 2,200 flights at Delta.

Consequently, the fresh projections, though numerically weaker than the previous ones, pleased investors as the impact of Irma on the company's financials was softer than expected. Fuel price per gallon in the third quarter of 2017 is expected between $1.68 and $1.73. Delta unveiled the projections while releasing its traffic data for the month of September.

While traffic (total system) increased 0.3% year over year, capacity expanded 0.6% for the month. Load factor (percentage of seats filled by passengers) declined 20 basis points to 84.4% in the month as traffic growth was outpaced by capacity expansion.

 2. Southwest Airlines expects operating revenue per available seat mile (RASM) to be flat to down 1% year over year. The metric was earlier projected in the range of down 1% to slightly up. Operating revenues in the third quarter are likely to be hurt to the tune of $100 million owing to the natural disasters.

This low-cost carrier expects capacity in the third quarter to expand approximately 3% on a year-over-year basis. The metric is now expected to increase between 3.5% and 4% from the earlier projected increase in the 4% to 5% range. Fuel price (economic) per gallon is still projected between $2.00 and $2.05. Unit cots (excluding fuel and oil expense, special items and profit sharing costs) are projected to increase between 3% and 4%.

3. American Airlines stated at its Investor Day that it expects total revenue per available seat mile (TRASM) in the third quarter to grow at 0.5% on a year-over-year basis. The company projects third-quarter pre-tax margin excluding special items, to vary between 8.5% and 10.5%. Prior view was in the range of 10%-12%.

However, its long-term view was very encouraging. The carrier's efforts to modernize its fleet are impressive as well. The company is on track to introduce 496 new planes in its fleet by the year-end.

4.  The deadliest mass shooting in modern U.S. history took place in Las Vegas on Oct 1, 2017. As a result of the incident, many people lost their lives and more than 500 were injured. Following the gruesome incident, many carriers including Allegiant Airlines, owned by Allegiant Travel Company ALGT, are offering free flights to victims and their families.

Currently, Allegiant Travel carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. 

Notably, in the next few days, travel to Las Vegas is likely to be hurt due to the incident. This, in turn, might impact tourism as Las Vegas is a favorite tourist spot. Consequently, travel-focused stocks that include airlines are likely to be on the back foot (read more: Will Las Vegas Mass Shooting Hurt U.S. Airline Stocks?).

5. Embraer SA won a firm order from SkyWest Inc. SKYW, the holding company of SkyWest Airlines and ExpressJet Airlines, for delivering 20 E175 jets. At current list prices, the order is estimated to be valued at $914 million, which will be added to the company's third-quarter 2017 backlog (read more: Embraer Secures Order for 20 E175 Jets From SkyWest).

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 green in the past week leading to the NYSE ARCA Airline Index gaining significantly. Over the last six months, the sector tracker gained 3%.

What's Next in the Airline Space?

The coming week is likely see September traffic reports from major players in the airline sector like United Continental Holdings UAL and Spirit Airlines SAVE.

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Southwest Airlines Company LUV: Free Stock Analysis Report
 
Delta Air Lines, Inc. DAL: Free Stock Analysis Report
 
United Continental Holdings, Inc. UAL: Free Stock Analysis Report
 
Spirit Airlines, Inc. SAVE: Free Stock Analysis Report
 
SkyWest, Inc. SKYW: Free Stock Analysis Report
 
Allegiant Travel Company ALGT: Free Stock Analysis Report
 
American Airlines Group, Inc. AAL: Free Stock Analysis Report
 
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