Virgin America's Trading Debut Makes A Mark
Zacks Investment Research | Nov 20, 2014 12:04AM ET
Over the past 5 trading days, most airline stocks retained their positive momentum as oil prices continued to experience a downward trend. Lower jet fuel prices have been a boon for the airline industry given the inversely proportional relation between crude prices and aviation stocks. Notably, fuel costs account for a major chunk of an airline's operating expense.
The impressive trading debut of low-cost airline Virgin America was an eye-catching event in the airline space over the past 5 trading days. Leading passenger airline JetBlue Airways Corp. (NASDAQ:JBLU)) also figured in the headlines, reporting healthy October traffic numbers.
We note that the current trend continues the momentum that airline stocks gained after they managed to bounce back post a lean period through September and early October. The improvement, with Ebola-related scare on the decline, came largely on the back of healthy earnings reports and weak oil prices.
Recap of Most Important Stories of the Last Five Trading Days
1. Virgin America made an impressive debut on NASDAQ last week. Shares of this California-based carrier jumped over 30% on its first day (Nov 14) as a publicly traded company. The warm welcome extended by the market to the company is attributable to the good times prevailing in the U.S. aviation industry, thanks to plunging oil prices (read more: Virgin America IPO: Stock Surges 30.4% After Trading Debut).
2. JetBlue Airways revealed a 10.4% year-over-year growth in its October traffic. This marked the ninth consecutive month of traffic growth at JetBlue post a dip in numbers in Jan 2014. Furthermore, the carrier launched a new daily nonstop service from Salt Lake City International Airport to Orlando International Airport in a bid to expand its reach further and augment the flying experience for its customers (read more: JetBlue Airways' October Traffic Up 10.4% on Packed Planes).
3. Latin American company Copa Holdings SA (NYSE:CPA) also released solid traffic data for the month of October. Copa Holdings’ air traffic climbed 12% year over year on a consolidated basis in Oct 2014 compared to the year-ago period (read more: Copa Holdings Air Traffic Rises 12% in October).
4. Low-cost carrier Spirit Airlines (NASDAQ:SAVE) announced that it plans to expand its nonstop service to ten new destinations. Passengers will be able to avail these flights effective spring next year. With the launch of this service, travelers will enjoy affordable ticket rates, which, in turn, should boost air traffic and load factor for the carrier (read more: Spirit Airlines Plans Flights to 10 New Destinations).
5. Another important event was the €1 billion ($1.25 billion) outsourcing deal signed between IBM and Germany-based carrier Deutsche Lufthansa Aktiengesellschaft. Through this seven-year IT infrastructure contract, inked on Nov 15, the German aviation company is looking to bring in new Mobile, Social Business and Analytics technologies so that it can offer new services to customers.
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The deal will result in annual savings of approximately €70M for Lufthansa which will enable it to compete effectively with rivals. Incidentally, the airline, which recently cut its 2015 profit forecast for the second time in the span of a few months, has been going through troubled times.
Performance
The following table shows the price movements of the major airline players over the past 5 trading days and during the last 6 months:
Over the past five trading sessions, United Continental Holdings Inc. (NYSE:UAL) emerged as the biggest gainer among the major players in the airline industry with its share price rising 6.52%. Southwest Airlines (NYSE:LUV) witnessed the highest upside (57.92%) over the last six months compared to its peers.
What’s Next in the Airline Biz?
Apart from the usual releases this week, investors are likely to look forward to the third quarter earnings release of Copa Holdings SA (NYSE:CPA) that is expected after the close of trading today. We expect major airline stocks to continue their upward journey over the next week.
The U.S. airline industry, already enjoying current conditions courtesy of increased demand and plunging oil prices, is expected to soar higher riding on the upcoming Thanksgiving season.
Trade organization Airlines for America has predicted that U.S. airlines will carry 1.5% more passengers in the Nov 21–Dec 2 period this year compared to last year. As estimated, the busiest flying day in the period will be Nov 30, the Sunday after Thanksgiving. Approximately 2.6 million people are expected to avail the air route on that day. Stay tuned to see whether eventually the forecast on U.S. airlines holds true or not.
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