Zacks Industry Outlook Highlights: Delta Air Lines, United Continental
Holdings, US Airways Group and Boeing
CHICAGO, Dec. 14, 2012
CHICAGO, Dec. 14, 2012 /PRNewswire/ --Today, Zacks Equity Research discusses
the U.S. Airlines, including Delta Air Lines Inc. (NYSE:DAL), United
Continental Holdings Inc. (NYSE:UAL), US Airways Group Inc. (NYSE:LCC) and The
Boeing Co. (NYSE:BA).
A synopsis of today's Industry Outlook is presented below. The full article
can be read at
In the base-case scenario, there are several factors that will drive overall
airline profits in 2013:
Passenger & Cargo: While the economic slowdown in several European countries
and in the U.S. will keep travel growth at check, markets in Asia, Latin
America and the Middle East would continue to boost growth in 2013. IATA
projects global airline passenger growth of 4.5%, while cargo business will
see an expansion of 2.4%.
Coming to demand-supply balances, demand (measured in traffic) will outpace
capacity (combined passenger and cargo) as the year advances. Capacity is
expected to show an increase of 3.8% while air travel demand is expected to
see a 3.9% pickup.
Fuel Price Rise: Airline profit outlook depends on fuel prices, the major
variable component in the industry.
Lower fuel price no doubt cuts the airlines' operating expenses, but it also
indicates a slowing economy and the consequent fall in global air travel
demand. With pricing decrease or increase (as it did by 15% in the third
quarter of 2012), the profitability level of the carriers will fluctuate.
The Association projects fuel to account for 32% of the overall operating
costs in 2013, which is at a similar level with the oil price spike in 2008.
High crude oil prices, largely a function of geopolitical forces, are beyond
the control of the airlines. However, IATA expects crude oil price to hover
around $105 per barrel in 2013 using Brent crude oil as a basis. We expect
crude oil and jet fuel prices to go up further because of the
economic-political tensions in many parts across the globe, but forecasting
this key variable with any level of accuracy has always been extremely
Getting Rid of Unprofitable Jets: Most of the air carriers at large are
scrapping or cutting flights in many small airports that are unprofitable in
order to reduce their fuel cost burden. North American carriers lead the way
in capacity discipline.
Over the last two years, Delta Air Lines Inc. (NYSE:DAL), United Continental
Holdings Inc. (NYSE:UAL), US Airways Group Inc. (NYSE:LCC) and American
Airlines – a subsidiary of AMR Corp. - slashed their capacity by about 16.6%,
16.3%, 14.3% and 8.4%, respectively as per the Centre for Aviation (CAPA).
Recently, Delta Air Lines entered into an agreement with Canadian firm
Bombardier Aerospace to purchase 40 new CRJ900 two-class regional jets. These
and superior two-class 76-seat aircraft will replace Delta's old and depleted
60 single-class 50-seat domestic airplanes.
The other international airlines that reduced their capacities over the past
two years are Air Canada, Air France, Qantas Airways, Korean Airlines and All
Rightsizing: Passengers are demanding comfortable and quality services with
proper security. Hence, airlines are focusing on fleet rightsizing by bringing
in new and advanced aircrafts that gel in a fuel-expensive environment.
Though initially expensive, the new aircrafts are more fuel efficient than the
existing ones and have helped in lowering operating and maintenance costs.
Over the next 2 decades (2011-2030), global airlines are expected to invest
$3.5 trillion to buy 27,800 new airplanes, having seating capacity of more
than 100. New airlines business, advanced technology and dynamic growth of air
travel in emerging markets throughout the world are boosting the demand for
About one-thirds of the global demand is expected to come from Asia, which
currently account for 28% of global air passengers. The demand in Europe and
the U.S. is expected to fall to 23% and 20% by 2030, respectively, from the
current 27% that each enjoy.
Airbus, the world's leading aircraft manufacturer, is expected to deliver the
largest number of aircraft to the airline companies, followed by The Boeing
Co. (NYSE:BA). The progress thus attained would help the companies regain
their lost profits.
Hedging Strategies: Hedging strategies are used by airline companies to cope
with the rising fuel prices. The carriers use a combination of calls, swaps
and collars at varying WTI crude-equivalent price levels to hedge.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed
in 1978 by Leonard Zacks. As a PhD from MIT Len knew he could find patterns in
stock market data that would lead to superior investment results. Amongst his
many accomplishments was the formation of his proprietary stock picking
system; the Zacks Rank, which continues to outperform the market by nearly a 3
to 1 margin. The best way to unlock the profitable stock recommendations and
market insights of Zacks Investment
Research is through our free daily email newsletter; Profit from the Pros. In
short, it's your steady flow of Profitable ideas GUARANTEED to be worth your
time! Register for your free subscription to Profit from the Pros at
Visit http://www.zacks.com/performance for information about the performance
numbers displayed in this press release.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/ZacksInvestmentResearch
Disclaimer: Past performance does not guarantee future results. Investors
should always research companies and securities before making any investments.
Nothing herein should be construed as an offer or solicitation to buy or sell
Zacks Investment Research
800-767-3771 ext. 9339
SOURCE Zacks Investment Research, Inc.
Press spacebar to pause and continue. Press esc to stop.