US Airways expected to benefit from current environment; American Airlines preparing for strikes
- North American airline stocks gained as JP Morgan forecasted positive growth in the sector.
- South American carrier stocks experienced significant losses.
- The AMEX Airline Index rose, supported by a drop in oil prices.
- US Airways saw a significant increase in stock value after an upgrade in rating by JP Morgan, citing favorable market conditions and minimal exposure to Europe.
- American Airlines gained as it sought volunteers for flight attendant training amidst potential strike action by its cabin crews.
- Falling fuel costs, tighter supply, and new revenue streams are expected to improve investor sentiment towards airline stocks.
The AMEX Airline Index (+2.2%) rose, with a further drop in oil prices (-1.1%) also assisting airline stocks.
The gain in airline stocks was despite a drop in the Dow (-0.2%) as political issues in Korea mounted and investors remained concerned over Europe's ability to overcome its debt issues. The decline was despite The Conference Board's report that the US Consumer Confidence Index increased to 63.3 in May-2010, up from 57.7 in Apr-2010. This is the third consecutive monthly increase. Consumer confidence appears to be gaining some traction, according to The Conference Board.
US Airways expected to benefit from current economic environment
US Airways (+10.9%) soared after JP Morgan upgraded its rating on the stock from ''Neutral' to 'Overweight' and increased its price target from USD8.50 to USD11.50. The analysts stated the carrier is likely to thrive in the current environment, due to a lack of fuel hedging and the smallest exposure to Europe among the US full service carriers. US Airways' revenue from European services equates to 12% of system revenue, compared with a group average of 20%.
JP Morgan also stated they expect investors to start to look more kindly at airline stocks, due to falling fuel costs, tighter supply and new revenue streams. Airlines may also see improved credit ratings of their debt over the next two years as a result. Analysts at Hunter Keay told Reuters, the sector is also likely to benefit more from the rising US Dollar than other sectors.
American Airlines preparing for potential strike action
American Airlines (+5.3%) also gained. The media reported during trading that the carrier is seeking 4,000 volunteers from its management team to undergo training as flight attendants following reports its cabin crews, represented by the Association of Professional Flight Attendants (AFPA), will strike. American and its flight attendants have been in mediated negotiations since early 2009. AFPA recently received strike authorisation and is also petitioning the National Mediation Board to release AFPA from negotiations and implement a 30 cool off period after which the flight attendants can conduct a strike.
America Airline Daily is your one-stop shop for news, data and analysis from the dynamic North American, Caribbean and Latin American aviation markets. Other stories featured in today's issue include:
- Aircastle announces quarterly dividend;
- Continental Airlines and United Airlines seek joint talks with employees;
- Delta drops more Cincinnati services;
- Southwest shareholders approve election of nine directors;
- Secretary LaHood charges advisory committee with ensuring health of US aviation.
North & South America selected airlines daily share price movements (% change): 25-May-2010
Source: Centre for Asia Pacific Aviation & Yahoo! Finance