Airline Stock Roundup: IATA Lifts '17 Profit View; United Continental Calls Off Venezuela Flights

The last week was dominated by updates from the International Air Transport Association (IATA). The monthly data released by the IATA revealed a 10.7% year-over-year increase in demand for air travel across the globe for April 2017. Healthy growth in both international and domestic traffic resulted in a rise in the overall figure.

Another significant update from the trade association emerged recently when it raised its 2017 profitability outlook for the airline industry to $31.4 billion from the earlier forecast of $29.8 billion. Higher passenger and cargo demand primarily drove the increase in outlook. The bulk of the global profits ($15.4 billion) are expected to come from the North American region.

The IATA updates apart, the Atlanta, GA-based airline behemoth Delta Air Lines (NYSE:DAL) was in the news by virtue of its encouraging May traffic report. The Chicago, IL-based United Continental Holdings (NYSE:UAL) also grabbed headlines as it has reportedly decided to stop flying to Venezuela from next month due to lacklustre demand.

An expansion-related update from Southwest Airlines (NYSE:LUV) also gained attention over the past week.

(Read the last Airline Stock Roundup for May 31, 2017).

Recap of the Past Week’s Most Important Stories

1. At its 73rd Annual General Meeting in Cancun, Mexico, the IATA said that despite rising fuel prices and labor costs, airline companies are expected to be more profitable in 2017 than previously expected. According to the revised forecast, air travel growth of 7.4% is expected in 2017 (the earlier forecast was 5.1%).

The improved demand scenario is anticipated to result in 4.1 billion passengers taking to the skies in 2017 (275 million passengers more than 2016 levels). In the event of this forecast coming true, 2017 would witness the highest year-over-year growth (Read more: IATA Lifts 2017 Profit View on Higher Demand: 5 Solid Picks).

Earlier in the week, IATA also released its global traffic numbers for April. Global travel demand registered a double-digit year-over-year increase during the month, which incidentally was the fastest pace witnessed in six years. International travel demand climbed 12.5% with all regions exhibiting double-digit traffic growth for the first time in 12 years.

Despite the healthy rise, the ban imposed earlier this year on carrying large portable electronic devices on U.S. bound flights from 10 Middle Eastern and African airports appeared to hurt traffic on the Middle East-US route. On the other hand, demand for domestic travel climbed 7.7%, with growth witnessed in all markets save Australia.

2. Delta’s May traffic – measured in revenue passenger miles (RPMs) – improved 1.7% and capacity remained flat on a year-over-year basis. Consolidated load factor, or percentage of seats filled by passengers, improved 140 basis points to 86.7%. This is because traffic expanded while capacity remained flat in the month leading to packed planes (Read more: Delta Air Lines May Traffic, PRASM Increase, Stock Up).

3. Hawaiian Airlines, the wholly owned subsidiary of Hawaiian Holdings (NASDAQ:HA) , reported healthy traffic numbers for May. Traffic climbed 8% on a 5% rise in capacity. The greater increase in traffic compared with capacity led to a 240 basis points increase in load factor to 86.7%.

Operating revenue per available seat mile in the second quarter of 2017 is now projected to grow in the band of 7.5% to 10.5% (the previous projection had called for a rise of 5.5% to 8.5%). The revision was due to better-than-expected yields primarily in the domestic market among other factors. Fuel cost per gallon (economic) is now projected in the band of $1.6 to $1.7 ($1.65–$1.75 projected previously).

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

4. The ongoing economic crisis in Venezuela has compelled many carriers to trim capacity/suspend operations in that country. The list lengthened with United Continental announcing its decision to suspend operations in the nation. According to reports, the carrier will not operate flights on the Caracas-Houston route from Jul 1 as the route has ceased to be financially viable to United Continental.

5. Southwest Airlines has begun flight service at Cincinnati/Northern Kentucky International Airport (CVG) in a bid to expand. Following this, the carrier offers a total of eight daily nonstop flights, five between CVG and Chicago Midway and three between CVG and Baltimore/Washington International Airport (Read more: Southwest Airlines Begins CVG Flights to Spread Wings).

Performance

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

The table above shows that most airline stocks traded in the green in the past one week. Consequently, the NYSE ARCA Airline Index increased 2.43% to $116.26. Over the course of the last six months, the NYSE ARCA Airline Index appreciated 7.6%. Shares of GOL Linhas (NYSE:GOL) appreciated the most (68.3%) during the period.

What's Next in the Airline Space?

Investors await May traffic reports from the likes of American Airlines Group (NASDAQ:AAL) and Spirit Airlines (NASDAQ:SAVE) in the coming days.

3 Stocks to Ride a 588% Revenue Explosion

At Zacks, we're mostly focused on short-term profit cycles, but the hottest of all technology mega-trends is starting to take hold...

By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>