The majority of North and South American carriers were up again on Wednesday (02-Dec-2009), raising the AMEX Airline Index (+3.7%) to its highest point in six weeks. The rise came despite a slip in the Dow, down 0.2% at the end of trading, but were assisted by a 2.3% drop in oil prices, to USD76.60, following two days of gains. optionMonster suggested that United and Continental were in a "stock surge" as the industry is undervalued for investors.
United Airlines (+12.5%) and American Airlines (+8.0%) were up on Wednesday after analysts at Morgan Stanley increased their ratings for the carriers from ‘Equalweight’ to ‘Overweight’. The analysts stated they expect profitability of US carriers to improve as the economy recovers, also increasing their outlook of the overall US airline sector from ‘In-line’ to ‘Attractive’.
The analysts also cited recent liquidity improvements for both carriers, which it stated would ease investors concerns. American Airlines made a gain of USD4.2 billion in liquidity and aircraft financing in Sep-2009, while United gained USD1.5 billion in liquidity injections for 3Q2009 and early 4Q2009. Morgan Stanley stated in a note to investors, "now that...previously exuberant expectations have normalised as evidenced by price action in the last [one to two] months [versus] improving trends and...the risk of a liquidity squeeze at a major carrier in 2010 has fallen; we believe investors will become increasingly willing to bet on the cycle,"
Meanwhile, Morgan Stanley downgraded its rating for Allegiant from ‘Overweight’ to ‘Equalweight’ and Alaska Air from ‘Equalweight’ to ‘Underweight’, stating they were some of the least leveraged carriers, making them less attractive investments when the economy has fully recovered.
United and Continental are benefiting from a stock surge, according to optionMONSTER, which reported they are benefiting from an improving outlook for the sector. “Call volume in the sector exceeded puts by almost 4 to 1 yesterday, according to optionMONSTER's Heat Seeker tracking program. That was the most bullish ratio for any industry group that traded at least 10,000 contracts in the session,” it said, adding United was the most active.
Continental Airlines (+4.8%) reported ahead of trading a 3.2 ppt year-on-year improvement in consolidated load factor for Nov-2009, to 80.5% in Nov-2009, as a result of a 2.9% increase in traffic (RPMs), as capacity (ASMs) was reduced 1.2%. Overall, passenger numbers rose 0.7% for the month, to 4.8 million.
For Nov-2009, consolidated passenger RASM is estimated to have decreased between 7.0% and 9.0% year-on-year, while mainline RASM is estimated to have decreased between 8.0% and 10.0%. According to the carrier, the ranges of the year-on-year RASM estimates for the month of Nov-2009 are wider than usual due to processing delays associated with the transition to Star Alliance. The estimated drop in passenger RASM is much smaller than that of Oct-2009, in which consolidated passenger RASM decreased 14.2% year-on-year, while mainline passenger RASM decreased 15.2%.
AirTran (+11.0%) and Allegiant (+4.3%) also reported Nov-2009 traffic results during trading, reporting a 0.9 ppt and 0.6 ppt improvement in load factor, respectively.
Delta Air Lines (+7.6%) CFO, Hank Halter meanwhile stated during trading that the carrier expects to report an 8% year-on-year drop in unit revenue for 4Q2009, which advance bookings improved on last years. However, Premium demand continues to remain low, with Business passengers continuing to purchase cheaper fares. With the industry expecting a modest recovery in 2010, Delta also expects unit revenue to rebound in mid-2010.
Please see: "Delta Surpasses Synergy Goals with Merger, Focusing on Premium Traffic"
North & South America selected airlines daily share price movements (% change): 02-Dec-09
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