Airline Stock Roundup: LUV's 737 MAX Update, ALK & JBLU's Bullish Q2 Views

Maharathi Basu

In the past week, Southwest Airlines LUV extended the grounding period of Boeing 737 Max jets till Sep 2, 2019, from the previous announcement of Aug 5. Notably, Southwest Airlines has the largest exposure to Boeing 737 MAX jets among U.S. carriers, with 34 such jets in its fleet.

Meanwhile, Alaska Air Group ALK provided a bullish update with respect to revenues and costs for the second quarter of 2019. JetBlue Airways JBLU also issued an upbeat second-quarter unit revenue outlook. However, JetBlue unlike Alaska Air did not provide any cost-related guidance.

Apart from the bullish views, these above-mentioned carriers released their respective May traffic reports. Latin-American carrier Copa Holdings CPA too issued its May traffic report in the last week.

(Read the last Airline Stock Roundup here)

Recap of Past Week’s Most Important Stories

1. Updates on Boeing 737 MAX jets have been flooding the aviation space ever since the deadly Ethiopian Airlines’ crash on Mar 10, 2019. In fact, this was the second accident involving Boeing 737 MAX jets within a span of five months. Last October, the same model went down in Indonesia, killing 189 people. The latest update came from Southwest Airlines suspended operations of its Boeing 737 Max jets until Sep 2, extending the grounding period by almost a month. This Zacks Rank #3 (Hold) low-cost carrier stated that it will cancel 100 flights daily through Sep 2. We remind investors that other U.S. carriers with 737 Max jets in their fleet, namely American Airlines AAL and United Continental UAL, have grounded the jets until Sep 3 and Aug 3, respectively.

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

2. Alaska Air Group now anticipates second-quarter 2019 revenue per available seat miles (RASM) in the range of 13.26-13.45 cents, representing an approximate rise of 3.5-5% year over year. Previously, RASM was anticipated to increase in the 2-5% band. Additionally, cost per available seat miles, excluding fuel and special items, is projected between 8.45 cents and 8.50 cents, indicating a change of approximately 4% from the prior-year reported number. Previously, the metric was anticipated to increase approximately 5% year over year. Additionally, the estimate for economic fuel cost per gallon has now been lowered to $2.25 from the earlier forecast of $2.30. This projection indicates a 2% decline year over year.

Meanwhile, load factor (% of seats filled by passengers) for May improved 30 basis points (bps) to 85.7% as traffic growth (1%) outpaced capacity expansion (0.7%). (Read more: Alaska Air Group May Load Factor Up, Q2 View Upbeat)

3. JetBlue anticipates second-quarter 2019 RASM to increase between 2% and 4% year over year. Previously, the metric was projected to ascend 1-4% in the April-June period. Placement of Easter/Passover holiday in April is expected to positively impact the metric.

Meanwhile, load factor for May improved 20 bps to 86% as traffic growth (5.7%) outpaced capacity expansion (5.4%). (Read more: JetBlue's May Load Factor Up, Q2 RASM View Bullish)

4. At Copa Holdings, consolidated traffic (measured in revenue passenger miles or RPMs) came in at 1.8 billion, down 2.6% from the year-ago figure. On a year-over-year basis, consolidated capacity (available seat miles/ASMs) shrank 4.6% to 2.08 billion. Consolidated load factor improved 1.8 percentage points (pp) to 86.1%. On a year-to-date basis, Copa Holdings generated RPMs of 8.83 billion (up 0.7% year over year) and ASMs of 10.51 billion (sliding 0.5% year over year). Load factor registered a rise of 1 pp year over year to 84%. (Read more: Copa Holdings' May Traffic Down But Load Factor Up)

5. In a bid to modernize its fleet, United Airlines, the wholly owned subsidiary of United Continental, has inked a firm order with Brazil’s Embraer ERJ for 20 E175 jets (designed to 70 passengers). The contract also provides United Airlines the option to acquire 19 more such jets. The planes are expected to be delivered from the second quarter of 2020 onwards. The deal is valued at $1.9 billion, based on current list prices. Inclusive the latest order, Embraer has reportedly sold in excess of 585 E-175s to North American carriers since January 2013.

Price Performance

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

The table above shows that majority of the airline stocks traded in the green over the past week. Consequently, the NYSE ARCA Airline Index improved to $102.05 in the period. Over the course of six months, the NYSE ARCA Airline Index has depreciated 2.6%.


What's Next in the Airline Space?

Stay tuned for usual news updates in the space.

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JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
Copa Holdings, S.A. (CPA) : Free Stock Analysis Report
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
Embraer-Empresa Brasileira de Aeronautica (ERJ) : Free Stock Analysis Report
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