Airline stocks have had a bumpy ride throughout March as investors ponder what impact the longest U.S. government shutdown in history and the grounding of The Boeing Company's (BA) best-selling aircraft ever, the 737 MAX, will have on industry earnings. The US Global Jets ETF (JETS), a fund that tracks the performance of major airlines, has fallen 9.71% over the past month as of March 28, 2019.
Amid the challenges facing the U.S. airline industry, its leading trade organization Airlines for America predicts a hectic spring travel season that will see a 4.3% increase in passengers flying over the period compared with last year. In more good news for embattled airline stocks, oil prices that sit 20% below their October 2018 high should reduce operating expenses.
Traders who think airline stocks have landed at support may want to explore these three trading ideas before they take off.
American Airlines Group Inc. (AAL)
American Airlines Group Inc. (AAL) provides air transportation services for passengers and cargo. The network air carrier flies to over 350 destinations in 50 countries. Some of its key hubs include Charlotte, Dallas/Fort Worth, Los Angeles and New York. American has 24 Boeing 737 Max aircraft in its fleet and recently said that it is canceling about 90 flights a day. What impact this will have on the company's first quarter bottom line results is yet to be determined.
In terms of valuation, the company trades at a discount to its competitors – it has a price-to-earnings ratio (P/E ratio) of 10 compared to the 12.7 airline industry average. As of March 28. 2019, American Airlines stock has a market capitalization of $13.89 billion and is down 3.33% for the year. A dividend yield of 1.32% helps to partially offset the capital loss.
Hopes of a double bottom chart pattern confirming were dashed this month as American's share price has descended back down toward crucial support at $30. Traders who want to board a long position in the stock should disembark at the $36 level, where the price may encounter overhead resistance from the 200-day simple moving average (SMA) and a horizontal line connecting several price points over the past 12 months. Close losing trades if the price falls below $29.
Hawaiian Holdings, Inc. (HA)
With a market cap of $1.25 billion, Hawaiian Holdings, Inc. (HA) offers scheduled full-service air transportation service between the Hawaiian Islands, from Hawaii to the U.S. mainland and to several South Pacific destinations. The airline also operates a range of charter flights. Hawaiian may face pressure to reduce fares now that Southwest Airlines Co. (LUV), the world's largest low-cost carrier, has recently commenced flights to the 50th state – although the Honolulu-based Hawaiian has a reputation for outstanding service, full catering and limited cancellations, which should help differentiate its product.
Analysts have placed a $31.18 price target on the stock – 20% above Wednesday’s closing price. Like American, Hawaiian is attractively valued, trading at just 5.4 times earnings. The company's share price is down 1.70% year to date (YTD) as of March 28, 2019. Investors receive a dividend of nearly 2%.
Speaking of double bottoms, one appears to be forming on Hawaiian's chart. Although this month's low made a lower low than in late December, the relative strength index (RSI) made a higher low – referred to as bullish divergence. This indicates weakening selling momentum and may trigger a reversal to the upside. Those who buy the stock here should look for a rise in altitude to $32 – an area the stock may hit turbulence from the October swing low and February swing high. Place a stop-loss order below this month's low to halt losses if the price suddenly reverses.
Alaska Air Group, Inc. (ALK)
Alaska Air Group, Inc. (ALK) operates air and cargo transportation services to 115 destinations across the United States, Mexico, Canada and Costa Rica. Despite its name, the airline calls Seattle home. The company should benefit from strong second quarter demand as it doesn't include any 737 Max aircraft in its fleet that is 298 strong. Moreover, recent initiatives to boost revenue, such as increasing the cost of checking in one bag to $30 and implementing "Saver" fares targeting budget-conscious customers, position the airline to benefit from a busy spring travel season.
Alaska Air stock, which yields 2.61% and has a market value of $6.79 billion, has tumbled 8.89% so far this year, underperforming the industry average by 11.54% over the same period as of March 28, 2019.
The airliner's shares have traded within a broad wedge pattern over the past five months that has provided traders with several high-probability entry points. After dropping in altitude for most of March, the stock saw some buying interest off the wedge pattern's lower trendline in Wednesday's trading session. In another sign suggesting that a bottom is in place, a bullish divergence has formed between the share price and RSI this month. Traders should eye a move to the $63 area, where the stock may find resistance from the pattern's upper trendline and 200-day SMA. Consider placing stops beneath the March 25 low at $53.39.