The US Big 3 airlines Delta, United and American: corporate yields weaken and 2017 outlook is soft

The large three global US airlines - American, Delta and United - posted nearly USD3 billion in 2Q2016 profits, excluding special items. But revenue continues to be a challenge, with uncertainty stemming from the UK Brexit vote and general economic sluggishness. Domestically, Delta and United continue to face falling corporate yields, even as volumes remain steady.

All three airlines have further revised their 2016 capacity guidance, which seems to have lifted their stock valuations. However, prices are still off yearly highs, and do not show signs of budging until investors see definitive signs of unit revenue increases. Whether or not the laser focus by investors on unit revenue is justified, the reality is that airline valuations will continue to suffer while the industry's performance in that metric remains negative.

The rise of ULCCs and other factors have driven permanent changes in pricing dynamics in the US industry, and the Big 3 find themselves in a state of adjusting to the new reality. The result is that fundamental improvement in unit revenues is not likely to begin until 2017 - despite investor preference for a quicker rebound.