Airline Stock Roundup: Delta's Bullish Q1 View, The Department Of Transportation's Tentative Nod And More

It was a week where there were quite a few updates in the airline space. The most eye-catching development was Delta Air Lines Inc. DAL's upbeat unit revenue forecast for the first quarter of 2018. Strong demand for air travel coupled with increasing yields contributed to the bullish forecast from this Atlanta, GA-based airline behemoth.

Airlines received another piece of good news, when the sector participants scored impressively on the punctuality front in January 2018, per the Air Travel Consumer Report unveiled by the U.S. Department of Transportation (DOT). The DOT was also in the news when it granted tentative permission to five U.S.-based carriers to operate new scheduled flights to Havana. The decision became necessary as many carriers had terminated their operations between the nations due to lower-than-expected demand.

Hawaiian Holdings, Inc. HA's subsidiary, Hawaiian Airlines, was another news maker in the week that had a day less of trading owing to Good Friday. Notably, the company's new chief executive officer, Peter Ingram, is reportedly unperturbed by Southwest Airlines Co. LUV's decision to commence service to Hawaii soon.

Recap of the Past Week's Most Important Stories

1. According to the Air Travel Consumer report, most U.S. carriers were more punctual in reaching their destinations in January compared with the year-ago figure. Alaska Airlines, the wholly-owned subsidiary of Alaska Air Group, Inc. ALK, secured the top spot with 88.9% of its flights arriving on time in the same month.

Moreover, the findings suggest that fliers were pleased as the number of complaints decreased during the month on a year-over-year basis.

2.The DOT has proposed that Delta will operate an additional round of daily flights connecting Miami and Havana. American Airlines Group Inc. AAL, which already operates four daily flights between the cities, has also been granted tentative permission to conduct an additional roundtrip on the route.

Meanwhile, JetBlue Airways Corp. JBLU, which already has a significant Cuban presence, has been permitted to operate additional flights on the Fort Lauderdale-Havana route (six times a week), apart from launching service between Boston and Havana on Saturdays.

The new allocations, however, have to be implemented within three months of the receipt of the final clearance from the government. Following final approval, Southwest will operate additional daily flights connecting Fort Lauderdale and Havana.

Finally, United Airlines UAL and its code-share partner Mesa Airlines have received a tentative approval from the DOT to extend its Houston-Havana Saturday service to a daily operation. However, the decision led to fears of competition intensifying among leading carriers as Havana is popular tourist spot.

3. Delta issued an encouraging outlook with respect to total revenue per available seat miles (RASM: a key measure of unit revenue) for the first quarter of 2018 and expects the metric to improve by approximately 5% (the earlier outlook on the metric had called for an improvement in the band of 4-5%).

The company still envisions first-quarter earnings per share to lie between 65 cents and 75 cents. While pre-tax margin is anticipated to increase in the range of 6.5-7.5%, capacity expansion is still expected to be around 3% for the quarter. The carrier expects higher costs to pressurize its bottom line in the quarter due to weather-related expenses and wage hikes, among other factors.

Consequently, the company increased its first-quarter projection for non-fuel unit costs. The metric is now projected to increase around 4% on a year-over-year basis (the highest point of its previously anticipated range of 3-4% increase).

On a separate note, Delta reported an increase in load factor (percentage of seats filled by passengers) for March. The metric was up110 basis points to 86.9% in the month as traffic growth (4.3%) outweighed capacity expansion (3%). Additionally, the carrier recorded an on-time performance of 86.9% and a completion factor (mainline) of 99%.

4. According to Hawaiian Airlines' CEO, Peter Ingram, that the company is making constant efforts to modernize its fleet. The carrier is also looking to expand its Asian operations. Ingram also stressed on the need to make its presence felt among investors in a bigger way. This is because it operates from remote Honolulu. Moreover, he believes that though airlines are now in a better financial health, they are still vulnerable to economic downturns.

 5. European low-cost carrier, Ryanair Holdings plc RYAAY, reported encouraging traffic data for March backed by cheap ticket prices. The carrier transported 10 million customers in the month, up 6% year over year. Load factor increased 100 basis points to 95%.

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