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Airline Stock Roundup: Earnings Beat at DAL & UAL, AAL's Bearish Q2 View & More
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In the past week, Delta Air Lines, Inc. (DAL - Free Report) kick-started the second-quarter earnings season for the airline space. This Atlanta, GA-based carrier reported better-than-expected revenues and earnings per share. However, Delta trimmed its projection for current-year earnings per share citing high fuel costs.
United Continental Holdings, Inc. (UAL - Free Report) also reported impressive results in the quarter. Results were driven by strong demand for air travel and higher ticket prices. This Chicago-based carrier’s decision to trim its capacity growth plans in the current year is encouraging as well. Moreover, United Continental unlike Delta raised its 2018 guidance for earnings per share.
American Airlines Group, Inc. (AAL - Free Report) was another major newsmaker over the past five trading days, courtesy of its decision to trim second-quarter unit revenue view. The airline behemoth attributed its decision to lower-than-expected yields in domestic market. American Airlines is slated to release its second-quarter results on Jul 26.
Meanwhile, Spirit Airlines, Inc. (SAVE - Free Report) , which will also release results on Jul 26, unveiled an improved guidance for second-quarter unit revenues and costs. JetBlue Airways Corporation (JBLU - Free Report) too featured in the headlines by virtue of its impressive June traffic data.
1. Delta’s second-quarter earnings (excluding 30 cents from non-recurring items) of $1.77 per share surpassed the Zacks Consensus Estimate by 5 cents. The bottom line also expanded on a year-over-year basis despite high fuel costs. Operating revenues came in at $11,775 million outpacing the Zacks Consensus Estimate of $11,678.8 million. The top line increased more than 9% from the year-ago figure. Strong demand for air travel boosted revenues (read more: Delta Q2 Earnings Surpass Estimates, '18 Guidance Cut).
2. United Continental’s earnings (excluding 75 cents from non-recurring items) of $3.23 per share surpassed the Zacks Consensus Estimate of $3.07. The bottom line also increased significantly year over year owing to higher revenues.
Operating revenues came in at $10,777 million, which outpaced the Zacks Consensus Estimate of $10,702 million. Moreover, the top-line figure was up 7.7% year over year. The company anticipates capacity to expand between 4.5% and 5.5%, while pre-tax margin (adjusted) is estimated to lie between 8% and 10%. Passenger unit revenues are anticipated to increase 4-6% year over year. Additionally, United Continental predicts consolidated cost per available seat mile (CASM) — excluding third-party business expenses, fuel & profit sharing — to either remain flat or decline up to 1% year over year. Meanwhile, consolidated average aircraft fuel price per gallon is envisioned between $2.27 and $2.32. Effective income tax rate for the quarter is likely to be in the 20-21% band.
For 2018, capacity is estimated to expand in the 4.5-5% range compared with 4.5-5.5% projected earlier. Adjusted capital expenditures are projected between $3.6 billion and $3.8 billion. United Continental expects adjusted earnings per share to lie in the band of $7.25-$8.75 for the full year. Earlier, the metric was predicted between $7 and $8.50.
3. American Airlines now expects total revenue per available seat mile (TRASM: a key measure of unit revenue) to grow approximately between 1% and 3% in the second quarter of 2018. The earlier guidance had called for the metric to grow approximately in the 1.5- 3.5% range on a year-over-year basis. Moreover, with oil prices on an uptrend, American Airlines raised its second-quarter forecast for average fuel prices per gallon. The metric is now expected between $2.24 and $2.29 (previous guidance: $2.18 - $2.23).
Additionally, the carrier expects its pre-tax income to be hurt to the tune of $35 million due to the computer failure at American Airlines’ regional carrier, PSA Airlines, last month. Pre-tax margin is expected in the band of 7.5-9.5%.
The only favorable part of the update was regarding the second-quarter guidance on cost per available seat miles, excluding fuel and other special items. The metric is now expected to increase in the range of 1.5-3.5% year over year. The earlier guidance had called for the metric to grow approximately in the 2.5-4.5% range. Lower-than-expected maintenance costs primarily led to the new projection.
4. Spirit Airlines anticipates second-quarter TRASM to decline 6.8% year over year. This is an improvement from the earlier view, which had predicted this key metric to decline in the 6.5-7.5% range. According to the discount carrier, it achieved a better-than-expected completion factor the April-June period. The guidance on non-fuel unit costs is also an improved one. The metric is expected to decline approximately 11% on an adjusted basis, better than a decline between 7.5% and 8.5% predicted earlier. Improved operation performance apart from the shift of certain expense items from the second quarter to the final quarter of 2018 contributed to the improved projection.
5. At JetBlue, June traffic — measured in revenue passenger miles (RPMs) — increased 7.8% year over year to 4.4 billion. Consolidated capacity (or available seat miles/ASMs) also expanded 5.9% to 5.06 billion on a year-over-year basis.
6. According to data released by the Bureau of Labor Statistics, average airfares (adjusted) in June decreased 0.9% on a month-on-month basis. Notably, this was the third successive month of air fare decline despite the rise in fuel costs. Moreover, unadjusted airfares dropped 5.9% in the same month on a year-over-year basis. Increased competition, which results in pricing pressure, is being blamed for the continuous decline in ticket prices.
Price Performance
The following table shows the price movement of the major airline players over the last week and during the past six months.
Company
Past Week
Last 6 months
HA
0.3%
-4.3%
UAL
3.5%
4.7%
GOL
20.1%
-34.1%
DAL
1.4%
2.1%
JBLU
1.1%
-1.2%
AAL
3.3%
-2.7%
SAVE
7.6%
0.3%
LUV
1.6%
-1.8%
CPA
2.5%
-10.8%
ALK
3%
6.3%
The table above shows that all airline stocks traded in the green over the last week leading to a 2.5% increase in the NYSE ARCA Airline Index. Over the course of six months, the sector tracker has decreased 1.8% due to multiple headwinds like rising fuel costs.
What's Next in the Airline Space?
Investors will look forward to second-quarter earnings reports of the likes of JetBlue and Hawaiian Holdings, Inc. (HA - Free Report) on Jul 24.
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Airline Stock Roundup: Earnings Beat at DAL & UAL, AAL's Bearish Q2 View & More
In the past week, Delta Air Lines, Inc. (DAL - Free Report) kick-started the second-quarter earnings season for the airline space. This Atlanta, GA-based carrier reported better-than-expected revenues and earnings per share. However, Delta trimmed its projection for current-year earnings per share citing high fuel costs.
United Continental Holdings, Inc. (UAL - Free Report) also reported impressive results in the quarter. Results were driven by strong demand for air travel and higher ticket prices. This Chicago-based carrier’s decision to trim its capacity growth plans in the current year is encouraging as well. Moreover, United Continental unlike Delta raised its 2018 guidance for earnings per share.
American Airlines Group, Inc. (AAL - Free Report) was another major newsmaker over the past five trading days, courtesy of its decision to trim second-quarter unit revenue view. The airline behemoth attributed its decision to lower-than-expected yields in domestic market. American Airlines is slated to release its second-quarter results on Jul 26.
Meanwhile, Spirit Airlines, Inc. (SAVE - Free Report) , which will also release results on Jul 26, unveiled an improved guidance for second-quarter unit revenues and costs. JetBlue Airways Corporation (JBLU - Free Report) too featured in the headlines by virtue of its impressive June traffic data.
(Read the last Airline Stock Roundup for Jul 11, 2018)
Recap of the Past Week’s Most Important Stories
1. Delta’s second-quarter earnings (excluding 30 cents from non-recurring items) of $1.77 per share surpassed the Zacks Consensus Estimate by 5 cents. The bottom line also expanded on a year-over-year basis despite high fuel costs. Operating revenues came in at $11,775 million outpacing the Zacks Consensus Estimate of $11,678.8 million. The top line increased more than 9% from the year-ago figure. Strong demand for air travel boosted revenues (read more: Delta Q2 Earnings Surpass Estimates, '18 Guidance Cut).
2. United Continental’s earnings (excluding 75 cents from non-recurring items) of $3.23 per share surpassed the Zacks Consensus Estimate of $3.07. The bottom line also increased significantly year over year owing to higher revenues.
Operating revenues came in at $10,777 million, which outpaced the Zacks Consensus Estimate of $10,702 million. Moreover, the top-line figure was up 7.7% year over year. The company anticipates capacity to expand between 4.5% and 5.5%, while pre-tax margin (adjusted) is estimated to lie between 8% and 10%. Passenger unit revenues are anticipated to increase 4-6% year over year. Additionally, United Continental predicts consolidated cost per available seat mile (CASM) — excluding third-party business expenses, fuel & profit sharing — to either remain flat or decline up to 1% year over year. Meanwhile, consolidated average aircraft fuel price per gallon is envisioned between $2.27 and $2.32. Effective income tax rate for the quarter is likely to be in the 20-21% band.
For 2018, capacity is estimated to expand in the 4.5-5% range compared with 4.5-5.5% projected earlier. Adjusted capital expenditures are projected between $3.6 billion and $3.8 billion. United Continental expects adjusted earnings per share to lie in the band of $7.25-$8.75 for the full year. Earlier, the metric was predicted between $7 and $8.50.
United Continental carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3. American Airlines now expects total revenue per available seat mile (TRASM: a key measure of unit revenue) to grow approximately between 1% and 3% in the second quarter of 2018. The earlier guidance had called for the metric to grow approximately in the 1.5- 3.5% range on a year-over-year basis. Moreover, with oil prices on an uptrend, American Airlines raised its second-quarter forecast for average fuel prices per gallon. The metric is now expected between $2.24 and $2.29 (previous guidance: $2.18 - $2.23).
Additionally, the carrier expects its pre-tax income to be hurt to the tune of $35 million due to the computer failure at American Airlines’ regional carrier, PSA Airlines, last month. Pre-tax margin is expected in the band of 7.5-9.5%.
The only favorable part of the update was regarding the second-quarter guidance on cost per available seat miles, excluding fuel and other special items. The metric is now expected to increase in the range of 1.5-3.5% year over year. The earlier guidance had called for the metric to grow approximately in the 2.5-4.5% range. Lower-than-expected maintenance costs primarily led to the new projection.
4. Spirit Airlines anticipates second-quarter TRASM to decline 6.8% year over year. This is an improvement from the earlier view, which had predicted this key metric to decline in the 6.5-7.5% range. According to the discount carrier, it achieved a better-than-expected completion factor the April-June period. The guidance on non-fuel unit costs is also an improved one. The metric is expected to decline approximately 11% on an adjusted basis, better than a decline between 7.5% and 8.5% predicted earlier. Improved operation performance apart from the shift of certain expense items from the second quarter to the final quarter of 2018 contributed to the improved projection.
5. At JetBlue, June traffic — measured in revenue passenger miles (RPMs) — increased 7.8% year over year to 4.4 billion. Consolidated capacity (or available seat miles/ASMs) also expanded 5.9% to 5.06 billion on a year-over-year basis.
Load factor or percentage of seats filled by passengers improved 150 basis points to 87% in the month as traffic growth outpaced capacity expansion (read more: JetBlue June Traffic Data Solid, Q2 Fuel Cost View Bleak).
6. According to data released by the Bureau of Labor Statistics, average airfares (adjusted) in June decreased 0.9% on a month-on-month basis. Notably, this was the third successive month of air fare decline despite the rise in fuel costs. Moreover, unadjusted airfares dropped 5.9% in the same month on a year-over-year basis. Increased competition, which results in pricing pressure, is being blamed for the continuous decline in ticket prices.
Price Performance
The following table shows the price movement of the major airline players over the last week and during the past six months.
Company
Past Week
Last 6 months
HA
0.3%
-4.3%
UAL
3.5%
4.7%
GOL
20.1%
-34.1%
DAL
1.4%
2.1%
JBLU
1.1%
-1.2%
AAL
3.3%
-2.7%
SAVE
7.6%
0.3%
LUV
1.6%
-1.8%
CPA
2.5%
-10.8%
ALK
3%
6.3%
The table above shows that all airline stocks traded in the green over the last week leading to a 2.5% increase in the NYSE ARCA Airline Index. Over the course of six months, the sector tracker has decreased 1.8% due to multiple headwinds like rising fuel costs.
What's Next in the Airline Space?
Investors will look forward to second-quarter earnings reports of the likes of JetBlue and Hawaiian Holdings, Inc. (HA - Free Report) on Jul 24.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>