Rising demand, falling crude prices drive October airline growth

Share price movement in October

Stock prices of major US airlines increased at an average rate of ~15% during October. The rate of increase in the NYSE ARCA Airline Index (15%) was more than three times that of the S&P 500 Index (4%). Share prices had declined in early October and in September, but they accelerated after the release of positive earnings from all major US airlines. The airline index increased by ~25% on a year-to-date basis from 69.45 in the beginning of the year to 89.95 at the end of October.

Rising demand, falling crude prices drive October airline growth

Share price growth

During the month, the highest share price growth of 24.5% was recorded by Alaska (ALK), followed by United’s (UAL) 16.1%, Delta’s (DAL) 15.3%, American’s (AAL) 13.6%, JetBlue’s (JBLU) 12.6%, and Southwest’s 5.9%. ETFs such as the SPDR S&P Transportation Index (XTN) and the iShares Transportation Average ETF (IYT) that have major holdings in airline stocks have benefited from rising stock prices.

All major US airlines reported a positive growth in traffic and revenue. With the exception of Delta, all other airlines reported higher net margins during the third quarter compared to the previous year. 

Key performance indicators

The highlights of the key performance indicators of US airlines include:

  • Economic growth in the US continues to improve, due to increased real disposable income and consumer spending. These are main drivers of leisure travel.
  • Business travel is more dependent on corporate profits, which also increased, leading to improved employment activity and lower unemployment rates.
  • The rate of growth in passenger traffic in October was higher than in August and September.
  • Passenger capacity growth remained the same as in September, while load factor improved in October.
  • Passenger yield rose in the domestic and international market as air fares picked up in October.
  • Crude oil fell below $90 per barrel due to continued supply growth, which led to lower fuel costs for airlines.
  • Employment in the airline industry increased continuously for ten consecutive months in September.
  • Improving earnings and profitability enabled companies to increase investment and reduce debt, as well as provide good returns to shareholders.

The discussion of important indicators of airline performance covered in this series will provide investors with a consolidated overview of trends in the airline industry.