US Airline Industry Overview: June 2015

Overview.jpg

Five of the major US airlines have reported their traffic numbers for June 2015. These airline companies are:

 

  • American Airlines Group (AAL)
  • Delta Air Lines (DAL)
  • JetBlue Airways Corporation (JBLU)
  • Southwest Airlines (LUV)
  • United Continental Holdings (UAL)

Most of these airlines have seen improvements in both traffic and capacity. However, the aggressive capacity growth and the fall in oil prices, along with foreign currency fluctuations and pricing pressures, resulted in a decline in the passenger unit revenues for most airline companies. The month also saw US airlines fall behind their global peers in terms of on-time performance.

Stock Performane

DOJ probe expected to cause temporary fall

The Department of Justice (or DOJ) launched a probe against four major airline operators—Delta Air Lines (DAL), United Continental Holdings (UAL), Southwest Airlines (LUV), and American Airlines Group (AAL).

The government agency has launched an investigation to probe any suspected unlawful coordination among the carriers to keep airfares high. The investigation has also triggered a number of lawsuits filed against these carriers.

June 2015 stock performance

The stock prices of all major airlines except JetBlue fell in June 2015. Delta Air Lines’ stock price fell by ~4%, American Airlines Group fell by ~6%, and United Continental Holdings fell by 3%. Southwest Airlines was the biggest loser and saw its share price fall by ~11%. JetBlue Airways was the only one among the six major airlines that saw a 3% rise in its stock price.

We’ll look at the performance of the six major airline stocks—American Airlines Group (AAL), United Continental Holdings (UAL), Southwest Airlines (LUV), JetBlue Airways Corporation (JBLU), Delta Air Lines (DAL), and Alaska Air Group (ALK)—in detail in the following articles.

These airlines constitute a majority of the market share (~78% by revenue passenger miles). Most of these airlines are a part of the iShares Transportation Average ETF (IYT), which holds ~38% in airline stocks.

Delta Air Lines Reports Mixed Traffic Trends in June 2015

Overview

Delta Air Lines (DAL) is one of the major American airline companies, with operations to 225 domestic and 97 international destinations. The company is also one of the four founding members of the SkyTeam airline alliance.

Delta Air Lines’ traffic report for June saw growth in key indicators such as revenue passenger miles (or RPM), available seat miles (or ASM), and load factors. However, weakness in its PRASM (or passenger revenue per available seat miles) and cargo ton miles counterbalanced the gains.

DAL june 15

 

Latin America shows weakness in key indicators

Delta Air Lines’ RPM for June grew by 3.2% year-over-year (or YoY), primarily driven by a 5.6% YoY rise in domestic markets. This helped offset the 17.8% YoY fall in the Latin America region.

Delta’s ASM also saw an 18.9% YoY fall in the Latin America region, which was offset by domestic growth. The load factor for Delta Air Lines improved by 0.06% year-over-year to 88.1%.

Capacity growth levels off

Delta Air Lines grew its capacity in the first half of the year, but it plans to keep its capacity constant for the coming few months. Delta took this step to bring about better utilization of capacity, match demand with supply, and improve its PRASM for the coming year.

Lower passenger unit revenues, lower guidance

Delta Air Lines’ PRASM for June decreased 4.5% year-over-year, primarily driven by foreign exchange pressure and lower surcharges in international markets.

Delta’s domestic yields also declined, adding to its woes. The continuous fall in PRASM has resulted in the company trimming its guidance for the next quarter. The company has announced that its PRASM will fall by 4.5%–6.5% for the coming quarter.

Delta Air Lines’ PRASM fell less than its major competitors, American Airlines (AAL) and United Continental (UAL). AAL expects its PRASM to fall by 6%–8%, and UAL expects its PRASM to decline by 5.25%–5.75% in 2Q15. In fact, JetBlue Airways (JBLU) was the only airline that did not report a decline in its PRASM.

These airlines are a part of the iShares Transportation Average ETF (IYT), which holds ~38% in airline stocks.

Oil price declines help lower expenses

The decline in oil prices has forced oil companies to rethink their hedging strategies. It has also put pressure on airline ticket prices. However, this also gives airlines the window to add new affordable flights and to expand their network. The average price per gallon of jet fuel also fell to $2.40–$2.45 for the month.

Delta Air Lines expects its situation to ease out by the fourth quarter, where it can reap the benefits of declining oil prices, its fleet restructuring, and cost-saving initiatives.

JetBlue Reports Impressive June 2015 Traffic Numbers

Overview

JetBlue Airways (JBLU) is a leading low-cost carrier service that provides service to 89 cities in the US, Caribbean, and Latin America. The traffic report for June 2015 saw its capacity grow by 8%. This was accompanied by a strong 8.8% growth in traffic from 3.25 billion to 3.5 billion from June 2014. JetBlue’s traffic growth also marginally improved its load factor by 0.6% to stand at 85.3%. Its completion factor was 99%, and its on-time performance was 78.1% for the month.

JetBlue Airways recorded the highest traffic and capacity growth among the six major airlines: Alaska Airlines (ALK), Southwest Airlines (LUV), Delta Air Lines (DAL), United Continental (UAL), and American Airlines (AAL). JBLU forms a 1.46% holding of the iShares Transportation Average ETF (IYT).

JBLU Jun 15

 

June 2015 numbers show broad-based growth

JetBlue Airways’ traffic and capacity growth weren’t the airline’s only highlights in June. The airline saw growth across all its key indicators. The airline’s revenue passenger miles (or RPM) grew by 8.8% year-over-year, backed by a 8% year-over-year growth in capacity.

The airline’s travel demand also saw healthy growth, as revenue passengers also grew by a strong 8.1% year-over-year. The PRASM value saw a marginal decline of ~1% year-over-year, evident throughout the industry due to pressure on ticket prices.

A strong half year

JetBlue has had a good first half of the year, as is evident from its YTD numbers. For the first six months of 2015, JetBlue generated 20.09 billion revenue passenger miles and 23.65 billion available seat miles (or ASM), which were up by 9.8% and 8.5% year-over-year, respectively. The load factor increased to 84.9% for the same timeframe.

Baggage fees introduced

For all customers that book the lowest Blue fare flights, JetBlue Airways started charging checked bag fees of $20 for a one-way trip. These charges are expected to add to the company’s revenues. These fees can be avoided by booking the Blue Plus tickets, which would cost about $15 more.

Starts services on New York–Havana routes

In December 2014, the Obama administration announced its decision to ease travel restrictions to Cuba. JetBlue Airways became the first carrier to operate direct charter flights on the New York–Havana route.

United Traffic Numbers Stay Up Despite Weakness in Latin America

Overview

United Airlines (UAL), the wholly owned subsidiary of United Continental Holdings, is one of the most comprehensive route network operators across the globe. The company’s June traffic reports show a 3.4% year-over-year growth in cargo unit revenues. Its passenger unit revenues grew at a slower 1.3% year-over-year pace compared with the same month last year.

The passenger load factor declined by 0.6 basis points to stand at 86.3% for the month, and the completion factor and on-time performance for the month were 97.8% and 66.4%, respectively. 

UAL june 15

 

United Airlines was the only airline to report a decreased load factor in June, with a 0.8% decline. The load factors for Delta Air Lines (DAL) and JetBlue Airways (JBLU) increased by 0.6% each, American Airlines (AAL) by 0.4%, Alaska Airlines (ALK) by 0.2%, and Southwest Airlines (LUV) by 0.1%. UAL forms 3.7% of the iShares Transportation Average ETF (IYT).

Weakness in Latin America region

United’s traffic numbers saw a decline of about 2.4% year-over-year, and its capacity declined by 2.7% year-over-year for the Latin America region. This weakness was seen across all operators in this region.

Strong monthly and YTD operational performance

While United Airlines’ traffic and capacity grew by 1.3% and 2.2% for the month of June, the same indicators saw 0.4% and 1.3% growth on a year-to-date (or YTD) basis for the first half of the year. However, the load factor fell by 0.7% to 82.6% on a YTD basis. The company has had a strong operational year until now.

Forecast changed

As a global operator, United Airlines’ numbers are substantially affected by the dollar. The demand from international markets has seen some weakness in the last couple of months. The company has lowered the upper end of its guidance range for its 2Q15 pretax profit margin.

Improved traffic, greater capacity, and fuller planes all contributed to a positive June for the company.

 

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