Southwest, JAL, & ANA Updates Due to Hawaii
Goldman Sachs downgrades Southwest Airlines because new Hawaii route could be too costly
Goldman Sachs downgrades Southwest Airliens to a sell rating from neutral and lowers its fiscal 2019 earnings per share estimate.
The brokerage also cuts its 12-month price target to $54 from $66 due to the reduced profit forecast.
Southwest completed its first trip to Hawaii earlier this month.
Thomas Franck | @tomwfranck
Southwest Airlines’s new route to Hawaii may prove profitable in the long run, but the service should pressure profits in the near term, according to Goldman Sachs.
Goldman analyst Catherine O’Brien downgraded the stock to a sell rating from a neutral rating and lowered her fiscal 2019 earnings per share estimate to $4.45 from $4.70. The brokerage also cut its 12-month price target to $54 from $66 due to the reduced profit forecast; the stock closed at $57.67 on Tuesday.
Southwest shares skidded 6 percent in early trading Wednesday.
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Though the analyst remains positive on the airline in the long term, those investors looking for a savvy stock investment in the next year may be better served with other names, O’Brien told clients.
“We expect its relative margin underperformance combined with multiple compression will translate to share price underperformance,” O’Brien wrote. “With the delay in Southwest’s ability to announce its Hawaii flights and begin selling tickets, we think the shortened selling window for its initial flights will create the need for the company to discount fares more heavily than we initially expected.”
Southwest completed its first trip to Hawaii earlier this month as federal safety inspectors oversaw the company’s maiden voyage to the islands. The low-cost airline first announced plans to offer service to Hawaii in 2017 and needs regulators to attest to its ability to operate the flights safely.
The 35-day partial government shutdown, which ended late last month, stalled the launch of new jets and routes, including Southwest’s long-awaited service to Hawaii.
Japan’s JAL and ANA beefing up Hawaii services as competition intensifies between domestic rivals
Competition between Japan Airlines Co. and ANA Holdings Inc.’s All Nippon Airways over Hawaii routes is intensifying as the major airlines are beefing up services to the travel destination, which is popular among Japanese.
On Tuesday, JAL announced a tie-up with Japanese hotel operator Seibu Holdings Inc. to offer experience tours in Kona, which is known for its rich natural environment, including the Kilauea volcano.
For the first of the tours, the two companies Tuesday jointly started selling a “glamping” plan, in which guests can enjoy luxury services outside while staying at large tents set up at Seibu’s Westin Hapuna Beach Resort.
In 2017, JAL resumed flights between Narita International Airport near Tokyo and Kona for the first time in seven years. In March last year, it launched code-sharing flights with Hawaiian Airlines, which had previously been in partnership with ANA.
With its tie-up with Seibu, JAL aims to keep its position as the top Japanese airline in terms of market share for Hawaii routes. ANA currently does not operate between Japan and Kona.
In an effort to catch up with JAL, ANA will introduce the Airbus A380 superjumbo jet on its Narita-Honolulu route on May 24. The aircraft has couch seats that help children sit comfortably for long hours, a feature designed to cater to families.
