Global Airline Industry Expectations in 2010 : Aviation Firms Shares Rose Sharply
March 13, 2010 | Airline Flight, Airline Industry, Airlines News, Aviation, Delta Air Lines
Airline stocks have been flying high in 2010 thanks to renewed hopes over an economic recovery, an uptick in business travel, and a stronger dollar. The Claymore/NYSE Arca Airline ETF (FAA) has shot higher on the news, gaining nearly 5% on the week and 15% so far on the year. A slight pullback in oil prices–one of the primary negative factors weighing on the airline industry–has also added momentum to FAA in recent sessions. Ongoing concerns over the financial health of Europe have boosted the greenback, which generally moves in the opposite direction of oil.
Alliance consolidation should also further help to boost revenues, as the world’s biggest airline, Delta Air Lines, looks for a new partner to assist in the expansion of international travel destinations. Not to be outdone, several of Delta’s chief rivals are also looking to strengthen international operations. “American Airlines, British Airways, and Iberia have taken significant steps toward allaying antitrust regulators’ concerns over their proposed alliance, offering a number of gates at New York’s John F. Kennedy Airport and London’s Heathrow and Gatwick airports to competitors,” writes Christopher Hinton. These developments could help many airlines open up more international routes, which could translate into increased profits. For many carriers, business and international are the most profitable operations.
Wall Street banks are beginning to take note of the improved outlook for the industry. UBS recently raised its target price on several carriers and Jesup & Lamont Securities forecast a smaller first-quarter loss for Delta. In further good news for Delta, the company raised its operating profit margin forecast for this quarter from 1% to 2% of sales, up from an estimate at the end of January of “break-even.” However, the best sign for investors in Delta was the large uptick in business travelers; ticket volume was up 34% in February compared to last year, producing a 32% rise in corporate travel revenue according to Barron’s.
