Of course, the drop in oil prices has been a significant catalyst for these stocks as lower fuel costs provide a boost to margins. However, there also now is clear evidence that demand has accelerated, a sign that the economy is picking up some steam. For instance, on July 5 DAL reported that Q2 unit revenue grew 2.5%, at the high end of its prior guidance of +1 to +3%. Additionally, DAL is expecting Q3 unit revenue growth to improve from that mark. Which brings us to AAL's guidance.
This morning, AAL raised its Q2 total revenue per available seat mile (TRASM) to 5-6%, up from its previous expectation of 3.5-5.5%. The improvement in TRASM from prior guidance is driven primarily by higher passenger yields, with particular strength in the Domestic, Central/South American, and Caribbean regions. In terms of margins, AAL now expects its Q2 pre-tax margin excluding special items to be between 13% and 14% versus its previous guidance of 12% to 14%.
The improving metrics in the industry isn't the only positive news to hit recently. Recall that back on June 22, AAL reported that it received an unsolicited notice from Qatar Airways indicating its intention to purchase at least $808 million in AAL stock and has an interest in acquiring a 10% stake in the airline. As far as this transaction is related, there are a couple potential roadblocks that could stymie Qatar Airways ambitions. First, AAL has a by-law within its corporate structure that prohibits anyone from acquiring 4.75% or more of the company's outstanding stock without advanced approval from the Board. Second, there are also foreign ownership laws that limit the total percentage of foreign voting interest.
That said, whether or not this acquisition of stock ultimately goes through does not change the fact that Qatar Airways apparently views AAL as a very attractive investment. Given that the major airlines are very similar in their operations and business models, it then stands to reason that Qatar Airways likely has a bullish view on the industry as a whole, too.
Wrapping up, it looks like clear skies ahead for AAL at the moment and sentiment on the group overall is as bullish as it has been in some time.