Airline Stock Roundup: LUV Issues Bullish Update, AAL, ALK, SAVE in Focus

In the past week, Southwest Airlines LUV provided an improved outlook for June and July compared with the previous coronavirus-ravaged months.  This Dallas-TX based low-cost carrier attributed the sunnier view to the gradual increase in passenger demand owing to easing of travel restrictions. The demand-recovery scenario raised many carriers’ optimism of late. Evidently, in the previous week, American Airlines AAL management stated that it hopes to reduce its cash-burn rate to nil by Dec 31, 2020.

The carrier was also in news in the past five trading days when it announced its intention to raise $3.5 billion to strengthen its liquidity position to combat the coronavirus-induced low passenger revenues. Meanwhile, Spirit Airlines SAVE was fined by the U.S. Department of Transportation (DOT) to the tune of $350,000 for violating rules pertaining to oversold flights.

Recap of the Past Week’s Most Important Stories

1. Southwest Airlines, currently carrying a Zacks Rank #3 (Hold), anticipates its June operating revenues to fall 70-75% year over year with capacity declining 40-50%. Load factor (percentage of seats filled by passengers) in the period is estimated in the 40-50% range. In May, operating revenues slumped 85-90% with capacity decreasing approximately 64% and load factor at around 30%. The May readings were better than those in April. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. In a bid to raise cash, American Airlines aims to offer $1.5 billion in senior secured notes due 2025. It expects to enter into a $500-million term loan facility due 2024. Further, the airline will sell $750 million each in shares and senior convertible notes due 2025. Goldman Sachs, Citigroup, BofA Securities and J.P. Morgan are acting as representatives of the underwriters for the stock and the notes offerings. However, per a recent Bloomberg report, the carrier will expand the size of its share and convertible bond offerings to $2 billion.

3. Spirit Airlines was fined when it wrongly classified more than 1,000 passengers as “volunteers” who were actual passengers and denied a boarding pass on the Miramar, FL-based carrier’s oversold flights. Notably, this budget carrier submitted inaccurate reports pertaining to passengers’ denied boarding for six consecutive quarters beginning the first quarter of 2017.

4. With improving demand, Alaska Air Group ALK anticipates revenue passengers to decline 80-85% year over year in June, indicating a betterment from 95% and 90% plunge in April and May respectively. Capacity in June is expected to be down approximately 70% year over year, compared with 78% and 79% decline in April and May respectively.  Load factor (percentage of seats filled by passengers) is predicted to improve to around 50-55% this month from 15% and 40% in April and May respectively. Meanwhile, total revenues are estimated to be down approximately 80% in June from 87% and 83% decline in April and May respectively.

5. Delta Air Lines DAL is set to resume service between the United States and China as travel restrictions ease, making it the first U.S. airline to re-start flights to the nation after the temporary halt since February due to the COVID-19 outbreak. Effective Jun 25, the carrier will re-start flights between Seattle and Shanghai-Pudong via Seoul-Incheon, operating twice a week. From July onward, it will operate flights once a week from Seattle and Detroit, also via Incheon. Delta will utilize the A350 aircraft to operate the Shanghai Pudong-Seattle route.

Performance

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

The table above shows that all airline stocks traded in the red in the past week due to apprehensions of a second wave of coronavirus as cases spike in the United States. The downside caused the NYSE ARCA Airline Index to decline 7.8% to $56.05. Over the course of the past six months, the NYSE ARCA Airline Index has plunged 50.2%.

What's Next in the Airline Space?

Investors will keenly await further coronavirus-related updates and their impact on air travel.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
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