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4 Airline Stocks Poised for Bottom-Line Outperformance in Q2
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The airline space is still trying hard to pick up the pieces after being jeopardized by the prevalent coronavirus pandemic, which suppressed air-travel demand at length. Consequently, Delta Air Lines (DAL - Free Report) kicked off the second-quarter 2020 earnings season for airlines on a disappointing note. At its earnings release on Jul 14, the carrier reported a wider-than-expected loss for the June quarter. Poor passenger revenues with a shocking 94% slump year over year due to air-travel demand woes were responsible for such a dismal show.
With the remaining aviation stocks lined up for result announcement, lets delve deep to unearth the factors that are likely to have influenced their respective June-quarter performances.
Similar to Delta, we expect other airlines to report low passenger revenues. In fact, the impact is likely to have been graver in the June quarter than the March quarter as the entire second quarter (April-June months) bore the brunt of this meltdown in air-travel demand as opposed to only a single month (March) in the last reported quarter.
To combat this extremely bleak demand scenario, many carriers already resorted to capacity cuts. However, a key metric — load factor (% of seats filled by passengers) — might have retained its downtrend due to a greater fall in air traffic. Another important metric — passenger revenue per available seat mile (a measure of unit revenues) — is also likely to have declined due to lackluster air-travel demand.
However, despite the aforementioned headwinds, there are some tailwinds, which are likely to aid the second-quarter performance of the airline companies, which are yet to report this time around. After hitting rock-bottom in April, air-travel demand started improving May onward. This upside is likely to get reflected in the carriers’ upcoming June-quarter results. As an evidence, American Airlines (AAL - Free Report) transported 2.7 million and 4.2 million passengers in May and June, respectively, indicating a marked betterment from only 965,000 passengers carried in April.
Despite the above uptick, passenger revenues are likely to have taken a hit year over year in the June quarter. Consequently, airlines are focusing on operating cargo-only flights, which in turn, is expected to have boosted cargo revenues and contributed to the to-be-reported quarter’s performance as well.
Moreover, operating expenses are likely to have been decreased in the June quarter, thereby driving the bottom line in the aviation domain. Notably, Delta reported a significant decline in operating costs owing to modest fuel expenses and the discreet cost-management of airlines to combat the tepid revenues. Similarly, the earnings of carriers yet to report results are expected to mirror the impact of controlled costs. With the majority of the fleet remaining grounded/under-utilized due to weak air-travel demand, fuel gallons consumed are likely to have been moderate in the June quarter, thereby reducing fuel expenditure.
How to Make the Right Pick?
The above write-up clearly suggests that passenger revenues are likely to have taken a severe beating, thereby hurting second-quarter results. However, low costs are expected to have supported the bottom line.
Notably, with the presence of a universe of industry participants, the task of finding the perfect airline stocks with potential to outperform on the bottom line can be daunting. But our proprietary methodology makes this job a cakewalk.
You may narrow down your choices to a set of stocks that has the perfect combination of the two key elements: a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is part of our quantitative model to determine the stocks with maximum chances of beating estimates in their impending earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this apt combination of ingredients, the odds of a positive earnings surprise are as high as 70%.
The company has a stellar earnings surprise history, having outshined the Zacks Consensus Estimate in each of the trailing four quarters, the average being 10.6%. It is scheduled to announce quarterly numbers on Jul 23.
Next on our list is Dallas-based low-cost carrier Southwest Airlines (LUV - Free Report) . The carrier has an Earnings ESP of +14.34% and a Zacks Rank of 3 at present.
The company has a pleasant earnings surprise history, having outpaced the Zacks Consensus Estimate in three of the trailing four quarters, missing the same in the remaining one. The average beat is 17.8%. It is scheduled to announce earnings figures on Jul 23.
Allegiant Travel Company (ALGT - Free Report) , headquartered in Las Vegas, NV, is our next option. The company has an Earnings ESP of +9.35% and is presently Zacks #3 Ranked.
The company has a mixed earnings surprise history, having surpassed the Zacks Consensus Estimate in two of the trailing four quarters, lagging estimates on the other two occasions. The average beat is 66.1%. It is scheduled to announce financial results on Jul 29.
The final member on our list of potential winners is the Long Island City, NY-domiciled carrier JetBlue Airways (JBLU - Free Report) . This low-cost airline has an Earnings ESP of +13.17% and is currently a #3 Ranked player.
The company has a pleasant earnings surprise history, having topped the Zacks Consensus Estimate in three of the trailing four quarters, falling short of the mark in the remaining one. The average beat is 3.9%. It is scheduled to announce quarterly numbers on Jul 28.
JetBlue Airways Corporation Price and EPS Surprise
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Image: Bigstock
4 Airline Stocks Poised for Bottom-Line Outperformance in Q2
The airline space is still trying hard to pick up the pieces after being jeopardized by the prevalent coronavirus pandemic, which suppressed air-travel demand at length. Consequently, Delta Air Lines (DAL - Free Report) kicked off the second-quarter 2020 earnings season for airlines on a disappointing note. At its earnings release on Jul 14, the carrier reported a wider-than-expected loss for the June quarter. Poor passenger revenues with a shocking 94% slump year over year due to air-travel demand woes were responsible for such a dismal show.
With the remaining aviation stocks lined up for result announcement, lets delve deep to unearth the factors that are likely to have influenced their respective June-quarter performances.
Similar to Delta, we expect other airlines to report low passenger revenues. In fact, the impact is likely to have been graver in the June quarter than the March quarter as the entire second quarter (April-June months) bore the brunt of this meltdown in air-travel demand as opposed to only a single month (March) in the last reported quarter.
To combat this extremely bleak demand scenario, many carriers already resorted to capacity cuts. However, a key metric — load factor (% of seats filled by passengers) — might have retained its downtrend due to a greater fall in air traffic. Another important metric — passenger revenue per available seat mile (a measure of unit revenues) — is also likely to have declined due to lackluster air-travel demand.
However, despite the aforementioned headwinds, there are some tailwinds, which are likely to aid the second-quarter performance of the airline companies, which are yet to report this time around. After hitting rock-bottom in April, air-travel demand started improving May onward. This upside is likely to get reflected in the carriers’ upcoming June-quarter results. As an evidence, American Airlines (AAL - Free Report) transported 2.7 million and 4.2 million passengers in May and June, respectively, indicating a marked betterment from only 965,000 passengers carried in April.
Despite the above uptick, passenger revenues are likely to have taken a hit year over year in the June quarter. Consequently, airlines are focusing on operating cargo-only flights, which in turn, is expected to have boosted cargo revenues and contributed to the to-be-reported quarter’s performance as well.
Moreover, operating expenses are likely to have been decreased in the June quarter, thereby driving the bottom line in the aviation domain. Notably, Delta reported a significant decline in operating costs owing to modest fuel expenses and the discreet cost-management of airlines to combat the tepid revenues. Similarly, the earnings of carriers yet to report results are expected to mirror the impact of controlled costs. With the majority of the fleet remaining grounded/under-utilized due to weak air-travel demand, fuel gallons consumed are likely to have been moderate in the June quarter, thereby reducing fuel expenditure.
How to Make the Right Pick?
The above write-up clearly suggests that passenger revenues are likely to have taken a severe beating, thereby hurting second-quarter results. However, low costs are expected to have supported the bottom line.
Notably, with the presence of a universe of industry participants, the task of finding the perfect airline stocks with potential to outperform on the bottom line can be daunting. But our proprietary methodology makes this job a cakewalk.
You may narrow down your choices to a set of stocks that has the perfect combination of the two key elements: a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is part of our quantitative model to determine the stocks with maximum chances of beating estimates in their impending earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this apt combination of ingredients, the odds of a positive earnings surprise are as high as 70%.
Our Choices
Alaska Air Group (ALK - Free Report) is based in Seattle, WA. This low-cost carrier has an Earnings ESP of +16.33% and a Zacks Rank #3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company has a stellar earnings surprise history, having outshined the Zacks Consensus Estimate in each of the trailing four quarters, the average being 10.6%. It is scheduled to announce quarterly numbers on Jul 23.
Alaska Air Group, Inc. Price and EPS Surprise
Alaska Air Group, Inc. price-eps-surprise | Alaska Air Group, Inc. Quote
Next on our list is Dallas-based low-cost carrier Southwest Airlines (LUV - Free Report) . The carrier has an Earnings ESP of +14.34% and a Zacks Rank of 3 at present.
The company has a pleasant earnings surprise history, having outpaced the Zacks Consensus Estimate in three of the trailing four quarters, missing the same in the remaining one. The average beat is 17.8%. It is scheduled to announce earnings figures on Jul 23.
Southwest Airlines Co. Price and EPS Surprise
Southwest Airlines Co. price-eps-surprise | Southwest Airlines Co. Quote
Allegiant Travel Company (ALGT - Free Report) , headquartered in Las Vegas, NV, is our next option. The company has an Earnings ESP of +9.35% and is presently Zacks #3 Ranked.
The company has a mixed earnings surprise history, having surpassed the Zacks Consensus Estimate in two of the trailing four quarters, lagging estimates on the other two occasions. The average beat is 66.1%. It is scheduled to announce financial results on Jul 29.
Allegiant Travel Company Price and EPS Surprise
Allegiant Travel Company price-eps-surprise | Allegiant Travel Company Quote
The final member on our list of potential winners is the Long Island City, NY-domiciled carrier JetBlue Airways (JBLU - Free Report) . This low-cost airline has an Earnings ESP of +13.17% and is currently a #3 Ranked player.
The company has a pleasant earnings surprise history, having topped the Zacks Consensus Estimate in three of the trailing four quarters, falling short of the mark in the remaining one. The average beat is 3.9%. It is scheduled to announce quarterly numbers on Jul 28.
JetBlue Airways Corporation Price and EPS Surprise
JetBlue Airways Corporation price-eps-surprise | JetBlue Airways Corporation Quote
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
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