Zacks Investment Research | Mar 16, 2018 08:01AM ET
Stocks in the airline space are flying high lately backed by improved unit revenue projections for the first quarter of 2018 provided by key sector players like United Continental Holdings, Inc. (NYSE:UAL) , Delta Air Lines, Inc. (NYSE:DAL) and Hawaiian Airlines — the wholly owned subsidiary of Hawaiian Holdings, Inc. (NASDAQ:HA) .
Additionally, after much struggles associated with capacity overexpansion, the carriers are experiencing better days now. In fact, February load factors (% of seats filled by passengers) increased for most carriers, thus hinting at a decline in capacity-related woes in the airline space.
Price Performance
The positivity surrounding the industry is evident from its impressive price performance in the past three months. While the Zacks Airline Industry rallied 5.7%, the S&P 500 index gained 3.3%.
Bullish Q1 Unit Revenue Views Bode Well
Unit revenue guidance for first-quarter 2018 is impressive, highlighting the solid demand for air travel. Notably, United Continental expects current-quarter passenger revenue per available seat miles (PRASM) to grow between 1% and 3% (prior guidance: 0% to 2%). Unit revenue views have also risen at Delta Air Lines. The carrier projects total unit revenues, excluding refinery sales, to increase in the band of 4-5% compared with 2.5-4.5% projected earlier.
Hawaiian Airlines too raised its guidance for first-quarter operating revenue per available seat mile (RASM) owing to better-than-expected passenger revenue performance in each of its geographies and higher cargo demand across the network. The company now expects RASM to increase 3-5%, up from its previous prediction of a decline of 0.5% to a rise of 2.5%. Also, JetBlue Airways Corp. (NASDAQ:JBLU) issued a revised RASM guidance, following its impressive traffic results last month. This low-cost carrier anticipates first-quarter 2018 RASM to improve 3.5-5.5% compared with 2.5-5.5% guided earlier.
Load Factors Rise in February
February traffic reports offer a glimmer of hope to key sector participants after continued struggles in this space. At most carriers, load factors improved as traffic growth was outpaced by capacity expansion, thus leading to packed planes.
Notably, At Delta Air Lines, load factor was up 40 basis points year over year to 81.5% in February, with traffic increasing 3.8% and capacity expanding 3.4%. Higher traffic growth in the same month led to 200 basis points, 340 basis points, 140 basis points and 190 basis points increase in load factor at Southwest Airlines Co., GOL Linhas Aereas Inteligentes S.A., United Continental and Hawaiian Airlines, respectively.
With load factors rising, air fares are expected to rise as well, thus aiding the top line of carriers. Evidently, per reports released by the Bureau of Transportation Services, airfares increased 0.6% in February compared with that in January. The trend is likely to continue in 2018 as airlines face Zacks Investment Research
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