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Could Airlines Begin to Slow After Impressive Fourth Quarter? Latest Reports on Delta Air Lines and Southwest Airlines
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Accesswire 5-Jan-2017 8:15 AM
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NEW YORK, NY / ACCESSWIRE / January 5, 2017 /Analysts have forecasted the Airlines Industry to slow after posting an impressive fourth quarter. Shares of airlines rose approximately 29 percent in the fourth quarter, while the sector as a while saw valuation multiples increase 37 percent, according to Cowen analysts. The NYSE Arca Airline Index ETF (XAL) has gained over 20 percent in the past three months.
"We do not believe this is the end of the airline cycle," wrote Cowen analyst Helane Becker. "We believe with the recent positive trend in the shares and subsequent upward multiple moves the group is due for a break."
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Cowen has downgraded the ratings of American Airlines, Air Canada, Alaska Air Group Inc., JetBlue Inc., Spirit Airlines Inc. and United Continental to "market perform" from "outperform". The firm's top picks in the sector is Delta Air Lines, followed by Southwest Airlines Co.
"Both Delta and Southwest had headwinds from technology outages in [the third quarter of 2016], which provide for easier [comparisons] than their peers," said Becker. "Also, both airlines have their labor agreements behind them, and those are no longer an overhang."
Delta Air Lines, Inc. (NYSE: DAL)
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Delta Air Lines' shares gained 2.47 percent to close at $50.70 a share Wednesday. The stock traded between $49.99 and $50.93 on volume of 7.90 million shares traded. On January 4, in its report of financial and operating performance for December 2016, Delta reported that consolidated passenger unit revenue (PRASM) was flat year-over-year in December, "driven by strong demand trends and improving close-in domestic yields as Delta's capacity actions and revenue management strategies continue to benefit results." The company now expects unit revenue to decline 2.5 to 3.0 percent in the fourth quarter, an improvement from Delta's previous forecast of a 3 percent drop.
Southwest Airlines Co. (NYSE: LUV)
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Southwest Airlines' shares gained 2.64 percent to close at $51.30 a share Wednesday. The stock traded between $50.15 and $51.42 on volume of 4.91 million shares traded. On December 7th, the company reported that it flew 10.4 billion revenue passenger miles (RPMs) in November 2016, an increase of 7.2 percent when compared to the 9.7 billion RPMs reported in November 2015. Southwest Airlines expects operating revenue per ASM (RASM) to decline roughly 4.0 to 5.0 percent in the fourth quarter of 2016 against operating revenue per ASM reported fourth quarter of 2015. The Company's total operating revenues totaled $5.1 billion in the third quarter of 2016.
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