With the third-quarter 2016 earnings season in full swing, we saw several companies from the airline sector announcing their quarterly results. Leading carriers like American Airlines Group (AAL Quick QuoteAAL - Free Report) , Alaska Air Group (ALK Quick QuoteALK - Free Report) and Spirit Airlines (SAVE Quick QuoteSAVE - Free Report) delivered better-than-expected results, Though JetBlue Airways (JBLU Quick QuoteJBLU - Free Report) missed earnings estimates, the low-cost carrier managed to beat the Zacks Consensus Estimate on the top-line front, albeit narrowly.

We note that despite the earnings beat by some airlines, the upside was somewhat limited by declining air fares – a major headwind for carriers in recent times. Increase in labor costs as many carriers have been inking new labor deals also hampered bottom-line growth.

American Airlines saw operating expenses rise 5.2% in the third quarter to $9.2 billion, mainly due to a 15.3% increase in salaries and benefits expenses. The recent labor deals inked by the company were one of the primary factors contributing to the increase in costs. JetBlue’s third-quarter results were also hit by higher labor costs.

Transportation - Airline Industry Price Index

 

Transportation - Airline Industry Price Index

 (Read the last Airline Stock Roundup for Oct 19, 2016).

Recap of the Past Week’s Most Important Stories

1. American Airlines reported better-than-expected earnings in the third quarter of 2016. The company posted adjusted earnings per share (EPS) of $2.80 that comfortably beat the Zacks Consensus Estimate of $1.68. Quarterly earnings increased more than 1% year over year. Revenues of $10,594 million were 1.1% below the year-ago figure but edged past the Zacks Consensus Estimate of $10,549 million (Read more: American Airlines Beats on Q3 Earnings & Revenues).

 2. Alaska Air Group reported third-quarter EPS of $2.20, which surpassed the Zacks Consensus Estimate of $2.05 and also increased 2% year over year. Quarterly revenues of $1.57 billion inched up 3% year over year and also beat the Zacks Consensus Estimate of $1.55 billion. Passenger revenues, which improved 2% on a year-over-year basis, accounted for bulk of the top line (Read more: Alaska Air Q3 Earnings Beat Estimates; Increase Y/Y).

At the third-quarter conference call, Alaska Air Group expressed optimism over its impending takeover of Virgin America (VA) despite the uncertainty surrounding the deal. Alaska Air Group expects the deal to close shortly.

3. Spirit Airlines’ third-quarter earnings (on an adjusted basis) of $1.24 per share beat the Zacks Consensus Estimate of $1.16. However, earnings decreased over 8% on a year-over-year basis. The low-cost carrier’s operating revenues of $621.3 million surpassed the Zacks Consensus Estimate of $615.4 million. Revenues increased by 8.1% from the prior-year quarter. In the reported quarter, total revenue per available seat mile (TRASM) fell 7% year over year, while load factor (percentage of seats filled by passengers) increased to 86% from 85.2% in the year-ago quarter. Load factor increased as traffic growth of 17.4% outpaced capacity expansion of 16.2% during the third quarter. Average economic fuel price per gallon declined 8.8% to $1.56.

The carrier expects capacity to increase 15.6% in the fourth quarter. TRASM (on an adjusted basis) is projected to decline in the band of 3–5% in the final quarter of 2016. Average economic fuel price per gallon is expected at $1.70 in the fourth quarter. For 2017, capacity is projected to increase at 18.5%.

4. JetBlue Airways’ third-quarter earnings (excluding special items) of 58 cents per share missed the Zacks Consensus Estimate of 60 cents. Total operating revenue inched up 2.6% year over year to $1,732 million and also beat the Zacks Consensus Estimate of $1,718 million (Read more: JetBlue Q3 Earnings Miss Estimates, Revenues Beat).

5. In a customer-friendly move, Latin American carrier Copa Holdings (CPA Quick QuoteCPA - Free Report) launched Wingo in Colombia. Wingo, which will commence operations on Dec 1, offers a low-cost business model as well as flexible amenities to the Colombian region. The offering is aimed at passengers who prefer a simple and no-frills travel mode. Wingo will operate administratively and functionally under Copa Airlines’ Colombian unit. Copa Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

Performance

The following table shows the price movement of the major airline players over the past week and during the last six months. 

The table shows that majority of the airline stocks traded in the green over the past five trading days leading to the NYSE ARCA Airline index increasing 1.73% to $97.03 mainly due to the multiple earnings beats despite the headwinds plaguing the sector. GOL Linhas was the biggest gainer, with its shares appreciating 12.42%.

Over the last six months, the NYSE ARCA Airline index gained 7.08%.

What's Next in the Airline Biz?

Investors will look forward to reports from the likes of SkyWest (SKYW Quick QuoteSKYW - Free Report) in the coming days.

Looking for Ideas with Even Greater Upside?

Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>