Airline Stock Roundup: AAL to Boost July Capacity, DAL, AZUL,UAL & GOL in Focus

In the past week, American Airlines AAL became the primary newsmaker as it decided to boost its capacity for July owing to improving trends for air-travel demand. Management stated that it intends to operate 55% of its scheduled domestic flights next month compared with the level recorded last July.

American Airlines’ bullish update buoyed the entire space leading the NYSE Airline Index gaining, as was the case in the previous week.

Reviewing the past week’s developments, Delta Air Lines DAL too grabbed headlines when it announced an 85% reduction in its schedule for the June quarter. Per a Reuters report, United Airlines UAL will be closing three of its four international bases for flight attendants with air-travel demand dropping to unprecedented levels, especially on the international front.

In the past week, May traffic reports were also available from Latin American carriers Gol Linhas GOL and Azul AZUL.

 Wrap-Up on the Past Week’s Key Headlines

1. With passenger demand slowly returning to normalcy, Vasu Raja, American Airlines’ senior vice president of Network Strategy, said that “We’re seeing a slow but steady rise in domestic demand”. Evidently, the company flew nearly 110,000 passengers per day on average in the last week of May. The reading reflects a 71% surge from the total passenger count of 32,000 carried per day on average in April. As a result of this spike in traffic, the load factor (% of seats filled by passengers) soared to 55% in the last week of May from a mere 15% in April. The carrier also aims to operate nearly 20% of its international flights scheduled for July compared with the capacity registered in July 2019. The move to drive its domestic as well as international capacity will in turn expand the carrier’s systemwide capacity for July, which will be roughly 40% of last year’s level.

2.  In a bid to control costs as it devices ways to combat the crisis posed by the coronavirus pandemic, Delta suspended flights to 11 U.S. destinations from Jun 8 onward. This strategic action is in line with the directive of the U.S. Department of Transportation, which allowed airlines to adjust their operations and reschedule flights wherever ‘’reasonable and practicable”. With demand being persistently tepid at the following destinations, namely Aspen, CO, Bangor, ME,  Erie, PA, Flint, MI, Fort Smith, AR, Lincoln, NE, New Bern/Morehead/Beaufort, NC, Peoria, IL, Santa Barbara, CA, Scranton/Wilkes-Barre, PA and Williston, ND, Delta suspended  operations to these destinations, which make up approximately 5% of its domestic services. Despite this Zacks Rank #3 (Hold) carrier suspending operations at these airports, the same will see uninterrupted services from at least one other carrier.

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

3. United Airlines, which expects its June capacity to be down approximately 90% year over year, intends to shut down bases at Frankfurt, Hong Kong and Tokyo for flight attendants beginning Oct 1. However, the airline will continue to maintain operations at its London base, per its in-flight services head John Slater. The closures will impact around 840 flight attendants, who will need to be transferred to the airline’s U.S. bases for the October flying schedule but that will again depend on their eligibility criteria.

4. With the COVID-19 outbreak affecting air-travel demand severely, Gol Linhas Aereas Inteligentes’ could not operate its international flights during May. Its total monthly traffic, measured in revenue passenger kilometers (RPK), tanked 93.7% on a year-over-year basis. With Gol Linhas lowering capacity in response to dwindling demand, total monthly capacity (measured in available seat miles) also contracted 93.1%. Further, consolidated load factor fell 7.3 percentage points to 74.8%.

5. With air-travel demand rebounding slowly, consolidated traffic for May improved 51.6% at Azul from April-levels. Apart from a significant 64.8% recovery in international traffic, the metric ascended 49.1% on the domestic front, thereby boosting the overall figure. Consolidated capacity (measured in available seat kilometers/ASKs) increased 44.8% owing to a 40.5% and 65.3% rise in domestic and international capacity, respectively, from the previous month.

Performance

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

The table above shows that all airline stocks traded in the green over the past week, prompting a 20.7% rally in the NYSE ARCA Airline Index to $68.97. American Airlines shares gained maximum (56.3%) following its update on July capacity. Over the course of six months, the Index has appreciated 12.8% with shares of Spirit Airlines SAVE having gained the most (32%).

What’s Next in the Airline Space?

With air-travel demand slowly picking up the pace, it would be interesting to note if there are updates similar to that of American Airlines on capacity expansion.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>> 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
AZUL SA (AZUL) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research