US airline industry
The US economy seems to be sending mixed signals so far in 2016. According to revised estimates, 1Q16 GDP rose by 0.8% compared to the 0.5% that was estimated. However, this was still lower than the 1.4% growth seen in 4Q15.
The good news is that private consumption, the main economic growth engine, increased in 1Q16. Consumer spending also remained buoyant. However, both investments and exports fell. Jobs growth also slowed in May 2016. As a result, the S&P 500 SPDR ETF (SPY) rose by 1% year-to-date (or YTD) as of June 15, 2016.
Economic growth is a major factor impacting airline industry demand, so the airline industry has closely tracked the Market in the past. However, 2016 has been a stark contrast. YTD in 2016, the Dow Jones U.S. Airline Index fell by a significant 21%.
Because air travel is a discretionary expenditure, it also makes sense to compare airline industry performance to the consumer discretionary sector. The Consumer Discretionary SPDR ETF (XLY) fell by 1.4% YTD.
Legacy versus regional carriers
Stocks of legacy carriers fell by more than their regional peers, except for regional carrier JetBlue Airways (JBLU), which saw a similar fall. United Continental (UAL) and American Airlines (AAL) fell by 27% and 29%, respectively. Alaska Air Group (ALK) and Delta Air Lines (DAL) fell by 25% and 24%, respectively.
JetBlue Airways saw a fall of 28%. Allegiant Travel (ALGT) fell by 14%, and Southwest Airlines (LUV) fell by 8%. Spirit Airlines (SAVE) was the only major US airline in the green YTD in 2016, rising by ~1%.
Next, we’ll analyze airline industry demand.