The second-quarter 2023 earnings cycle is scheduled to start shortly for players in the Zacks Airline industry. Airlines are expected to perform well in the June quarter, driven by increased passenger volumes and declining fuel costs.

Given the current scenario of buoyant air-travel demand (both domestic and international), the Zacks Airline industry has been soaring high. Notably, the Zacks Airline industry has risen 36% so far this year, outperforming the 10.9% growth of the broader Zacks Transportation sector and 16.9% rise of the Zacks S&P 500 composite.

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People booking flights is leading to higher passenger revenues and contributing to most airlines’ top line. Driven by increased passenger revenues, the financial health of airlines has improved. We believe that the current summer season is likely to see a further surge in passenger revenues, in turn, aiding airlines’ top lines.

Moreover, the lifting of restrictions under the CARES Act has allowed airline companies to initiate shareholder-friendly activities (like dividend payouts or share repurchases), highlighting their pro-shareholder stance.

Given this encouraging backdrop, we present three airline stocks, Delta Air Lines, Inc. (DAL Quick QuoteDAL - Free Report) , American Airlines Group Inc. (AAL Quick QuoteAAL - Free Report) and Southwest Airlines (LUV Quick QuoteLUV - Free Report) , which have provided their updated second-quarter 2023 guidance.

Each of these stocks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

All the abovementioned stocks have gained with respect to price in the year-to-date period.

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Revised Q2 Projections

Delta Air Lines’ management has issued a favorable outlook for the second quarter and full-year 2023 at the company’s Investor Day presentation. The company attributes this positive outlook to strong air-travel demand.

For second-quarter 2023, Delta now expects adjusted earnings per share (EPS) to be in the range of $2.25 to $2.50 (prior view: $2-$2.25). Further, DAL now anticipates registering revenue growth between 17% and 18%, higher than the previous range of 15% to 17%. Operating margin for the second quarter is expected to be 16%.

For 2023, Delta also raised its outlook. DAL now anticipates full-year adjusted earnings to be $6 per share, which aligns with the top end of its previous expectation in the $5-$6 range. The Zacks Consensus Estimate for current-year earnings is currently pegged at $5.97 per share.

DAL has also raised its revenue growth outlook to a range of 17% to 20% compared with the earlier forecast of 15% to 20% increase. In 2023, Delta now expects to generate free cash of $3 billion (prior view: $2 billion). The company now expects current-year operating margin at the top end of the 10-12% range expected previously.

For fiscal 2024, the airline still expects EPS to exceed $7 and a free cash flow of more than $4 billion. It also foresees an operating margin of 13% to 15%.

Driven by upbeat demand, American Airlines lifted its second-quarter EPS (excluding net special items) view in the $1.45-$1.65 range (earlier guidance: $1.20-$1.40). The adjusted operating margin is now anticipated in the 12.5-14.5% band (earlier guidance:11-13%). Average fuel cost per gallon is now expected in the range of $2.55-$2.65 (earlier guidance: $2.65-$2.75).

AAL now expects total revenue per available seat miles (a measure of unit revenue) to decline 1%-3% from second-quarter 2022 actuals (the earlier estimate was for a 2-4% decline).

Non-fuel unit costs are still expected to increase 3.5-5.5% year over year. Available seat miles (a measure of capacity) are still estimated to increase 3.5-5.5% year over year.  

For 2023, AAL has reinstated its outlook. Management still expects available seat miles to increase 5-8% year over year. Our model estimates an increase of 6.1% year over year. Non-fuel unit costs are still expected to increase 2-5% year over year. Our estimate hints at a 3.4% year-over-year increase.

AAL still expects EPS (excluding net special items) in the $2.50-$3.50 range. The Zacks Consensus Estimate is currently pegged at $2.98.

For second-quarter 2023, Southwest Airlines now expects revenue per available seat mile to be down 8-10% (prior view: down 8-11%). Capacity or available seat miles are still estimated to improve 14% from the year-ago reported figure.

Economic fuel costs per gallon is now expected to be $2.55 (prior view: $2.45 - $2.55). LUV continues to expect consolidated unit cost or cost per available seat mile, excluding fuel, oil and profit-sharing expenses, and special items, to increase 5-8% in the second quarter from the comparable period in 2022. Interest expenses are still expected to be $65 million in the second quarter.