Airline Stock Roundup: IATA Lifts '16 Profit View; Delta, American Airlines In Focus

The past week saw the raising of the 2016 profitability outlook for the airline industry to $39.4 billion from $36.3 billion by the International Air Transport Association (IATA), courtesy weak oil prices. All regions, barring Africa, are expected to perform well in 2016 with North America expected to lead the show.

Moreover, woes related to passenger unit revenue (PRASM, a measure of unit revenue) continued to hurt Delta Air Lines, Inc. (NYSE:DAL) with the Atlanta, GA-based carrier revealing that the metric declined 5% in May. On the other hand, Alaska Air Group, Inc. (NYSE:ALK) , the parent company of Alaska Airlines, reported healthy traffic numbers for May buoyed by increased demand.

Furthermore, expansion-related and labor friendly updates from Southwest Airlines (NYSE:LUV) and Spirit Airlines (NASDAQ:SAVE) gained attention over the past week. American Airlines Group’s (NASDAQ:AAL) announcement of modifying its frequent flier program also grabbed headlines.

Recap of the Past Week’s Most Important Stories

1. Delta’s May traffic – measured in revenue passenger miles (RPMs) – improved 3.3% and capacity expanded 3.5%. The greater increase in capacity compared with traffic caused load factor (percentage of seats filled by passengers) to decrease to 85.3% in the month. However, PRASM continued to decline due to adverse foreign exchange movements and soft domestic yields. Moreover, rumors regarding the airline behemoth’s interest in buying the Latin American carrier Avianca Holdings S.A. AVH grabbed attention (read more: Delta Air Lines' May Traffic Up, PRASM Declines 5%).

2. At its Annual General Meeting in Dublin, the IATA increased its projection for 2016 global net profit for the industry to $39.4 billion from the earlier $36.3 billion. The comparable 2015 figure was $35.3 billion. In the event of the forecast coming true, 2016 will be the fifth successive year of profit improvement for the airline industry (read more: Good Times to Continue for Airlines? IATA Says So).

3. Alaska Air Group saw its May air traffic move up 11.6% year over year on an 11.3% rise in capacity. Load factor increased to 84.7%, courtesy the greater rise in traffic (read more: Alaska Air Group May Traffic Maintains Growth Trend).

4. In a bid to expand, Southwest Airlines has filed an application with the U.S. Department of Transportation (DOT) for permission to fly to three more Mexican cities. The carrier intends to operate non-stop flights between Los Angeles and the Mexican destinations – Cancún, San José del Cabo/Los Cabos and Puerto Vallarta – from Nov 6, 2016, assuming that it gets the approval by Jun 30 (read more: Southwest Airlines Looks to Add 3 Mexican Destinations).

5 Spirit Airlines inked a pay related tentative contract with the International Association of Machinists & Aerospace Workers or IAM. The provisional deal covers the members of the ramp service team of the low-cost carrier based at Fort Lauderdale-Hollywood International Airport. The ratification voting procedure will carried out later in the month.

6. In a customer-friendly move, the Fort Worth, TX-based American Airlines Group modified its AAdvantage Loyalty Program. Following the modification, the elite members of American Airlines’ AAdvantage program will earn bonus miles for every dollar spent rather than the distance flown. The changes, similar to those made by its peers like Delta, will take effect from Aug 1. The carrier said that its elite fliers will earn five miles for every dollar spent on tickets (base fares and carrier-imposed fees). That number of miles awarded rises to seven, eight or eleven with an increase in elite status level - gold, platinum and executive-platinum, respectively. Also from Jan 1, 2017, American Airlines intends to introduce another level to its elite class – placed between platinum and executive platinum levels. Moreover, for being eligible for the elite status, fliers need to meet minimum annual spending levels in addition to the existing elite-qualification requirements. For example, to qualify for the gold level, a flier will have to spend at least $3,000 apart from flying 25,000 miles or 30 segments annually. This change will also take effect from Jan 1, 2017.

Performance

The following table shows the price movement of the major airline players over the past week and during the last 6 months.

The table above shows that all airline stocks barring Delta traded in the green over the past week, leading to a 4.01% rise in the NYSE ARCA Airline index to $86.84 over the same time frame. Shares of GOL Linhas appreciated the most (8.10%) as investors seemed to be pleased with its restructuring efforts.

Over the past six months most airline stocks lost value with the NYSE ARCA Airline index declining 4.25%. Shares of JetBlue Airways have shed the maximum (28.93%) over the period.

What's Next in the Airline Space?

We expect May traffic updates from airline heavyweights like American Airlines Group and United Continental Holdings (NYSE:UAL) over the coming days.