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Airline Stock Roundup: Virgin America, Copa Holdings Earnings in Focus; United Continental Doubles Buybacks

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The past week saw California-based low cost carrier Virgin America revealing in-line earnings in the final quarter of 2015 while revenues lagged expectations. On the other hand, Latin American carrier Copa Holdings (CPA - Free Report) reported mixed results in the fourth quarter, beating earnings estimates but missing on sales.

On the news front, United Continental Holdings (UAL - Free Report) grabbed headlines by virtue of its investor-friendly announcement that it intends to double its buyback plan for the current quarter. Meanwhile, low-cost carrier Southwest Airlines (LUV - Free Report) received encouraging news on the labor front with its ground staff approving a contract pertaining to their pay.

Moreover, according to data released by the Bureau of Labor Statistics, average airfares in the U.S. for Jan 2016 were up 1.2% (on a seasonally adjusted basis) from the comparable figure in Dec 2015.

Read the last Airline Stock Roundup for Feb 17, 2016.

Recap of the Past Week’s Most Important Stories

1. Virgin America's fourth quarter 2015 earnings (excluding special items) of $1.20 per share were in line with the Zacks Consensus Estimate. Earnings improved substantially from the year-ago quarter. Results were aided by low fuel costs. Fuel price per gallon (on an adjusted basis) was $1.76, down 38.7% year over year. Operating revenues came in at $391.5 million, marginally missing the Zacks Consensus Estimate. Revenues improved 5.2% from the year-ago figure.

The carrier expects capacity to increase in the range of 14% to 16% in the first quarter of 2016 on a year-over-year basis.  Moreover, the company projects PRASM (a measure of unit revenue) to decrease in the band of 3% to 5% in the first quarter of 2016. The carrier expects economic fuel cost (inclusive of related taxes and hedge costs) to average between $1.55 and $1.65 per gallon in the first quarter.

Cost per available seat mile (excluding fuel and profit sharing and special items) is projected to increase in the band of 2% to 3% in the first quarter, on a year-over-year basis. The metric is however projected to decrease in the band of 1% to 2% for full-year 2016.

2.United Airlines – the wholly owned subsidiary of United Continental Holdings –stepped up its share repurchase program from $750 million to $1.5 billion for the first quarter of 2016. The carrier also said that it intends to complete the $3 billion buyback plan, announced in July last year, by the second half of the current year. The earlier deadline for the same had been fixed for Dec 31, 2017 (read more: United Airlines Doubles Share Repurchase Program, Stock Up).

On a separate note, last week, United Continental disclosed that in October last year, it had received a Civil Investigative Demand from the Civil Division of the United States Department of Justice asking for documents pertaining to the carrier’s contract to carry mail for the U.S. Postal Service. United Continental stated that it is fully cooperating in the enquiry. According to a Reuters report, Delta Air Lines (DAL - Free Report) has also received a similar inquiry.

3. Copa Holdings’ fourth quarter earnings (on an adjusted basis) of 73 cents per share were above the Zacks Consensus Estimate of 66 cents. Earnings were however significantly below the year-ago figure of $2.83 per share. Quarterly revenues declined 18.6% on a year-over-year basis to $532.6 million.

Revenues were short of the Zacks Consensus Estimate of $563 million. The year-over-year decline was primarily due to the 19.1% decline in passenger revenues. The positive impact of a 30.8% decline in fuel costs was mitigated by a 20.2% decline in operating revenue per available seat mile. Passenger traffic (on a consolidated basis) climbed 1.7% during the quarter primarily on the back of solid growth in international travel. Capacity climbed 2%. Load factor (% of seats filled) declined 30 basis points to 74.8% as traffic growth was outpaced by capacity expansion.

4. In sync with the lows prevalent in the broader markets in Jan 2016, the first month of 2016 was not a very happy one for fliers as average airfares in the U.S. were higher than the preceding month. The month-on-month increase was not entirely surprising as major carriers like Delta Air Lines and American Airlines (AAL - Free Report) had hiked fares during the month of January (read more: Airline Fares Increase in January as Labor Costs Rise).

5. Members of the Transport Workers Union Local 555, representing the 12,000+ ramp, operations, provisioning, and cargo agents of Southwest Airlines, ratified a five-year contract with the carrier, which guarantees them higher pay and improved working conditions. Approximately 50.4% of the votes cast were in favor of the deal, which becomes amendable in 2021. The tentative deal was inked in Dec 2015. Apart from the labor deal, Southwest Airlines was also in the news when it announced that it still expects to expand capacity in 2016 in the band of 5% to 6%.

Performance

The following table shows the price movement of the major airline players over the past week and during the last 6 months. 

 

Company

Past Week

Last 6 months

HA

10.93%

88.37%

UAL

11.50%

5.96%

GOL

6.36%

-54.55%

DAL

9.51%

16.13%

JBLU

4.31%

6.17%

AAL

3.73%

7.34%

SAVE

0.65%

-13.49%

LUV

10.13%

10.40%

CPA

9.25%

-3.15%

ALK

4.06%

-0.49%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Over the course of last week, the NYSE ARCA Airline index increased 6% to $87.44. The biggest gainer was United Continental (11.50%) due to its shareholder friendly buyback update that sent shares uphill during the week.

Meanwhile, over the last six months, the NYSE ARCA Airline index gained 2.2%. Hawaiian Holdings (HA - Free Report) gained the most with its shares advancing 88.37% during the period.

What's Next in the Airline Biz?

With the fourth quarter earnings season over for airline stocks, stay tuned for usual news updates in the space. Focus, in particular, will remain on updates pertaining to the Zika virus and progress on the resumption of flights between the U.S. and Cuba.


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