The transportation sector, which includes airlines, truckers, shipping stocks and railroads to name a few, is grappling with a number of challenges. The headwinds have hurt the second-quarter 2016 results of this widely diversified space (one of the 16 Zacks sectors).

This can be made out from our latest Earnings Trends report which shows that the transportation sector’s second-quarter performance was worse than the first quarter of 2016. The report states that the bottom line has declined 12.4% year over year in the second quarter for transportation companies (in the S&P 500 space) while the same had expanded 3.3% in the first quarter of the year. The numbers make a sorry reading even with respect to the top line as well. In the second quarter, revenues shrunk 1.3% while the same had declined only 0.9% in the first quarter.

With the broader sector undergoing tough times, how can the airline sub-group be spared? The sorry state of affairs is reflected by the bearish Zacks Industry rank of 241 (among 260+ groups) carried by the Transportation-Airline segment.

Stocks in the airline space are facing a number of headwinds ranging from the surge in terror attacks, uncertainty following the Brexit vote, unit revenue issues and technological glitches, to name a few. Moreover, declining airfares have the potential to hurt the top line of airline companies.

The mixed second-quarter 2016 performance by airline behemoth Delta Air Lines (DAL Quick QuoteDAL - Free Report) throws more light on the plight of the airline stocks. The Atlanta, GA-based carrier kicked off the second-quarter earnings season for the airline sector on Jul 14. Even though the carrier beat the Zacks Consensus Estimate for earnings, it continued to struggle on the revenue front with the top line shrinking 2.4% mainly due to currency woes. Revenues also fell short of the Zacks Consensus Estimate.  

Unit revenue issues have been plaguing Delta, like its peers for quite some time. This is reflected by the declining metric – passenger revenue per available seat mile (PRASM: a measure of sales relative to capacity for a carrier). PRASM declined 4.9% in the second quarter of 2016 to 13.59 cents mainly due to currency woes. That the PRASM-related issues are not a thing of the past at Delta can be made out from the 7% drop in the metric in July. The sharp drop was due to foreign exchange woes along with the ongoing supply-demand imbalance in the Transatlantic and softness pertaining to domestic yield.

Earlier in the month, the carrier suffered yet another setback when a power outrage in Atlanta disrupted its operations causing undue harassment to passengers. In view of this gloomy backdrop, it is of little surprise that the 2016 Zacks Consensus Estimate declined in excess of 8% over the last 60 days to $5.79 per share. Additionally, the Delta stock lost 26% year to date. The Zacks Rank #5 (Strong Sell) carried by Delta further reinforces the fact that investors should avoid this stock for now.

4 Other Airline Stocks to Avoid

With the airline sector struggling, we pinpoint four other stocks in the space that are underperforming and should be dumped without further ado.

Dallas-based low-cost carrier Southwest Airlines Co. (LUV Quick QuoteLUV - Free Report) is struggling big time. The stock lost value following the release of its second-quarter results on Jul 21 wherein earnings lagged estimates. Moreover, the carrier suffered a technology outage recently, which resulted in cancellation and delays of over 2000 flights.

The setback caused the carrier to slash its third-quarter operating revenue per available seat mile (RASM: a key measure of unit revenue) guidance earlier this month. RASM is now expected to decline in the range of 3.5% to 4.5% in the third quarter as compared to the earlier projected range of a decline of 3.0% to 4.0%.

In view of this gloomy backdrop, it is of little surprise that the 2016 Zacks Consensus Estimate has declined almost 5% over the last 30 days to $3.87 per share. Additionally, the stock lost in excess of 14% year to date. The Zacks Rank #5 carried by Southwest Airlines further reinforces the fact that investors should keep away from this stock at present.

CA-based low-cost carrier Virgin America is also best avoided at the moment. The Zacks Rank #5 company reported lackluster second-quarter results with both earnings and revenues lagging expectations. The carrier‘s earnings per share of 93 cents missed the Zacks Consensus Estimate of $1.17 and also declined 36.3% year over year. Quarterly revenues of $426 million also missed the consensus mark of $447 million.

Also, Santiago, Chile-based LATAM Airlines Group S.A. should be avoided going by the present scenario.  The carrier, carrying a Zacks Rank #5, performed disappointingly in the second quarter of 2016 reporting wider-than-expected loss. Moreover, the quarterly loss of 17 cents per share was wider than the year-ago loss of 9 cents. Revenues declined in excess of 14% to $1,967 million in the reported quarter. Due to the below-par results on Aug 11, the 2016 Zacks Consensus Estimate declined over 34% to 17 cents over the last 7 days.

Last but not least Germany’s Zacks Rank #5 company Lufthansa (DLAKY Quick QuoteDLAKY - Free Report) should also not make it to your portfolio now. The carrier reported year-over-year decline in earnings and revenues in the second quarter of 2016. The carrier stated last month that travel demand to Europe has been waning following multiple terror attacks and the uncertainty following the Brexit vote.

The carrier also said that advance bookings, especially on long-haul Europe-bound routes, have been hurt by the above-mentioned headwinds. The company now expects 2016 adjusted earnings before interest and taxes to be below 2015 levels (the previous guidance had hinted at the measure being slightly above the 2015 figure). Shares of the carrier have shed over 25% so far this year.

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