Airline stocks dip lower
Legacy airline carriers such as United Airlines (UAL), American Airlines (AAL), Delta Air Lines (DAL), and Alaska Air Group (ALK) had a successful year in 2014, with stocks surging upward for most of the year. However, all these airline stocks have dipped year-to-date (or YTD) in 2015.
The only exception to this trend is the stock of Alaska Air Group, whose shares have surged by ~36% YTD. American Airlines has been the biggest loser, falling almost 22% YTD. United Airlines fell ~14% YTD, and Delta Air Lines fell ~5%. The iShares Transportation Average ETF (IYT), which invests ~16.85% of its holdings in airline stocks, fell ~14% YTD.
On a long-term basis, the shares of all airline stocks have shown good growth. In the past five years, Alaska Air Group has shown the highest growth of 600%, followed by Delta Air Lines, whose stock increased by 320%. United Airlines’s stock rose 150% in the same time period, while American Airlines’s stock rose the least at 61%.
In this series, we’ll compare major legacy carriers in the United States across various parameters to find out how they compare to one another. Most legacy airlines follow a hub-and-spoke business model, which focuses on directly connecting major international and national hubs to provide a better network of coverage.
This is traditionally a complex and high-cost revenue model because the airlines have many cost components. These include huge physical infrastructure, huge and complex aircraft fleets, legacy information systems, a large number of ancillary services, and a large number of labor resources.
These costs, along with changing consumer preferences, weak economic conditions, and the emergence of low-cost carriers, has resulted in losses for these legacy airlines. The hub-and-spoke business model, revolutionary in earlier times, is quickly becoming unsustainable.
For this reason, most legacy carriers have been undergoing cost reduction initiatives to reduce overhead at a time when demand is increasing. In our next article, we’ll discuss how airlines are catering to this demand.
You can also read LUV, JBLU, and SAVE: Which One Is the Best? for a comparative analysis on the US regional carriers.