Delta and AirTran downgraded; United Continental Holdings rated 'buy'; Alaska Air down

North and South American airline shares plunged on Monday (04-Oct-2010) as analysts downgraded ratings for a number of carriers, fuel prices rose and the wider market fell. The Dow (-0.7%) fell as investors expressed caution ahead of the start of the 3Q2010 reporting season and new jobs data.

Fuel prices were up 1.1% for the day, surging over the USD80.00 mark to USD81.47.    

Delta and AirTran downgraded

Delta Air Lines (-4.2%) was also down after Raymond James & Associates downgraded its rating of the carrier’s stocks from "outperform" to "market perform", based on expected increased competition from Southwest’s acquisition of AirTran. Analyst, Duane Pfennigwerth, stated Southwest’s entry into Delta’s largest hub, Atlanta, would result in a “significant change in the competitive landscape, which should not be downplayed”.

Raymond James & Associates also reduced its rating of AirTran from "outperform" to "underperform", stating there is limited upside to Southwest’s takeover of the LCC and Southwest’s offer is unlikely to be countered. AirTran ended trading flat. The carrier reported a 1.4% year-on-year rise in passenger numbers for Sep-2010 during trading, to 1.8 million. Load factor also rose, up 0.7 ppts, to 77.7%.

See related CAPA Profile: Mergers and Consolidation

United Continental Holdings rated at 'buy'

Meanwhile, Soleil Securities initiated coverage of United Continental Holdings (-2.4%), United Airlines and Continental Airlines’ newly merged entity, at "buy" with a price target of USD31.00. Soleil stated it sees the new carrier “as having the best balanced route network in the US, and arguably the global, industry and also see it as having superior aggregate exposure to the fastest growing international markets in the Pacific and Latin America”. The analysts estimate the carrier to report earnings per share (EPS) of USD4.65 for FY2010 and USD5.00 for FY2011. Stifel Nicolaus also initiated coverage of the company at "buy", with a price target of USD40.00, while Hudson Securities rated the carrier as "buy" with a price target of USD35.00. UAL ended trading at USD24.10.

On Friday (01-Oct-2010), Continental Airlines reported a 1.4 ppt rise in load factor for Sep-2010 to 82.9%, led by a 7.2 ppt rise in Asia Pacific and a 3.5 ppt rise in trans-Atlantic load factors to 84.0% and 86.6%, respectively. Passenger numbers were meanwhile up 1.4%, to 4.7 million.

See related CAPA Profile: Traffic and Capacity

Alaska Air load factor up

Alaska Air (-2.5%) was also down for the day, despite reporting improved load factors for Alaska Airlines and Horizon Air for Sep-2010. Alaska Airlines load factor was up 3.6 ppts to 81.5%, while Horizon Air loads were up 2.4 ppts to 76.1%. Passenger numbers for Alaska Air also rose for the month, gaining 8.6% to 1.3 million. However, Horizon Air passenger numbers were down 2.6% for the period to 541,000.

Elsewhere, JetBlue (-4.4%) also suffered a significant decline for the day, while Jazz Air Income Fund (+2.6%) and GOL (+0.1%) were the only carriers up for the day.

North & South America selected airlines daily share price movements (% change): 04-Oct-2010