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Airline stocks jump after Delta, Southwest update outlooks

A Delta Airlines airplane takes off from Ronald Reagan Washington National Airport in Arlington, Virginia.
Saul Loeb | AFP | Getty Images
A Delta Airlines airplane takes off from Ronald Reagan Washington National Airport in Arlington, Virginia.

Airline stocks helped the Dow transports rise more than 1 percent Wednesday, after Delta Air Lines and Southwest Airlines both reported encouraging figures.

Delta said on Wednesday that the airline remains focused on returning to positive unit revenue growth, a key industry metric.

"We have a lot of signs, reasons to be optimistic," Delta Chief Financial Officer Paul Jacobson said in a Reuters report, which cited a conference call with investors.

Jacobson said, however, that Delta is on track for an 18 to 19 percent operating margin in the current quarter, slightly below prior guidance of 19 to 21 percent. The company said a power outage that shut down computer systems in August would probably result in a $150 million drop in pretax income.

Joseph DeNardi of Stifel Nicolaus said the lowered margin outlook was in line with expectations.

Separately, Southwest Airlines said Wednesday it expected capacity to rise less than 4 percent, with domestic accounting for 2 percent of that growth.

"I think that gives investors more confidence that the pricing environment can improve next year," DeNardi said. Stifel has a "buy" rating on both Delta and Southwest.

In addition, passenger demand strengthened in July, according to a Wednesday report from the International Air Transport Association. Total revenue passenger kilometers, or RPKs, rose 5.9 percent.

"Demand was stimulated by lower fares which, in turn, were supported by lower oil prices," said IATA CEO Alexandre de Juniac in a statement.

Dow transports year-to-date performance


Source: FactSet

Other airline stocks climbed, helping the transports trade more than 1 percent higher, on pace for their best day since August 5.

Shares of United Continental rose about 5 percent, while American Airlines shares climbed 4.8 percent and JetBlue Airways ticked nearly 3 percent higher.

Reuters contributed to this report.