We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Results from some of the leading airline companies are in, and we can identify some broad trends therein.
Trend number one is international travel has come roaring back. And it isn’t just the Pacific region, though that is benefiting from China and Japan opening up, as well as alliances with local operators. Although Europe is experiencing heat waves, that doesn’t seem to be deterring travelers. South America too is going strong.
The second trend is that the recovery seems to be broad-based, across leisure and business.
Pent-up demand for international travel is the strongest driver of leisure travel. The lifting of pandemic-related restrictions and testing is really pushing it, particularly on the international side. The trend is currently expected to continue for a while, as people usually make their travel plans in advance. The hybrid work environment is also a driver for leisure travel because of the flexibility it allows. The segment will also benefit as people divert funds from other discretionary activity to catch up on travel.
Business travel is also coming back, as pandemic-related measures are removed. The hybrid work environment is a slight negative for business travel because people are not as easily available to do physical meetings. But this situation continues to evolve and more people continue to come back. 2024 could be when things normalize to a great extent.
As far as profitability is concerned, the situation is positive because jet fuel prices have dropped substantially. Additionally, capacity adds have been slower of late as suppliers struggle with supply chain issues, labor costs, etc. Limited capacity and surging demand is the recipe for stronger pricing, and lower fuel cost offers flexibility to operators to lower prices without sacrificing margins, if the economy does take a turn for the worse. Airport capacity is also a sticking factor, and this is leading to increased demand for widebody aircraft, that can carry more passengers per flight.
The Zacks Rank #3 (Hold) company beat the Zacks Consensus earnings estimate by 26.1%, which came on top of a revenue beat of 1.8%. The full-year guidance for per share earnings was raised by a dollar to $11-$12.
The strong results were attributed to ongoing strength in its international business, as it continues to expand its global network and increase connectivity at new locations. In order to make the most of the growing demand in the Pacific region, it announced new flights to Manila, Hong Kong, Taipei and Tokyo. The company has placed the largest ever order for widebody aircraft with Boeing in December last year. Additionally, it has implemented the United Next program to deploy technology and other measures to bring down cost.
UAL estimates for 2023 and 20242 are up a respective 5% and 3%.
#2 (Buy) ranked Delta beat the Zacks Consensus revenue estimate by 3.9% and earnings estimate by 10.7%. Management raised the 2023 outlook to $6-$7 and maintained free cash flow expectation of $3 billion.
Despite a 17% increase in capacity, total revenue per available seat mile (TRASM increased 1%, driven by international passenger revenue, which grew 61%. The greatest strength was in Southern European destinations, but both the Pacific region and South America/Caribbean were also up strongly. Delta is seeing declining non-fuel unit costs as we move through the year, driven by scale efficiencies and double-digit decline in fuel cost.
The 2023 estimate is up nearly 21% while the 2024 estimate is up 6% in the last 30 days.
American Airlines beat on revenue by 2.3% and on earnings by 21.5%. The Zacks Rank #3 company’s full-year earnings guidance was raised to between $3.00 and $3.75 a share.
Like the others, American is seeing significant decline in fuel cost. But unlike them, it expects labor costs to increase in the near term (pilots are going to be paid on par with United and flight attendants are looking for 35% pay hikes). The airline also expects a decline in the revenue per seat mile as it runs more flights during the current quarter. Therefore, the near-term outlook spoke to increased uncertainty and hit share prices.
AAL estimates are up 5% for 2023 and 3% for 2024 in the last 30 days.
Bottom Line
There are several positive factors driving airlines stocks right now, not the least of which is the economic growth we’ve had over the last few years that was not supported by normal business activity. Now that pandemic-era restrictions are lifted, the expansion in the economy should generate growth in travel. While these factors are positive for all airlines, those with international exposure and pricing power are no doubt the ones that will outshine others.
One-Month Price Performance
Image Source: Zacks Investment Research
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
What to Make of Airlines Earnings So Far
Results from some of the leading airline companies are in, and we can identify some broad trends therein.
Trend number one is international travel has come roaring back. And it isn’t just the Pacific region, though that is benefiting from China and Japan opening up, as well as alliances with local operators. Although Europe is experiencing heat waves, that doesn’t seem to be deterring travelers. South America too is going strong.
The second trend is that the recovery seems to be broad-based, across leisure and business.
Pent-up demand for international travel is the strongest driver of leisure travel. The lifting of pandemic-related restrictions and testing is really pushing it, particularly on the international side. The trend is currently expected to continue for a while, as people usually make their travel plans in advance. The hybrid work environment is also a driver for leisure travel because of the flexibility it allows. The segment will also benefit as people divert funds from other discretionary activity to catch up on travel.
Business travel is also coming back, as pandemic-related measures are removed. The hybrid work environment is a slight negative for business travel because people are not as easily available to do physical meetings. But this situation continues to evolve and more people continue to come back. 2024 could be when things normalize to a great extent.
As far as profitability is concerned, the situation is positive because jet fuel prices have dropped substantially. Additionally, capacity adds have been slower of late as suppliers struggle with supply chain issues, labor costs, etc. Limited capacity and surging demand is the recipe for stronger pricing, and lower fuel cost offers flexibility to operators to lower prices without sacrificing margins, if the economy does take a turn for the worse. Airport capacity is also a sticking factor, and this is leading to increased demand for widebody aircraft, that can carry more passengers per flight.
Here's a quick recap of three airlines:
United Airlines Holdings, Inc. (UAL - Free Report)
The Zacks Rank #3 (Hold) company beat the Zacks Consensus earnings estimate by 26.1%, which came on top of a revenue beat of 1.8%. The full-year guidance for per share earnings was raised by a dollar to $11-$12.
The strong results were attributed to ongoing strength in its international business, as it continues to expand its global network and increase connectivity at new locations. In order to make the most of the growing demand in the Pacific region, it announced new flights to Manila, Hong Kong, Taipei and Tokyo. The company has placed the largest ever order for widebody aircraft with Boeing in December last year. Additionally, it has implemented the United Next program to deploy technology and other measures to bring down cost.
UAL estimates for 2023 and 20242 are up a respective 5% and 3%.
Delta Air Lines, Inc. (DAL - Free Report)
#2 (Buy) ranked Delta beat the Zacks Consensus revenue estimate by 3.9% and earnings estimate by 10.7%. Management raised the 2023 outlook to $6-$7 and maintained free cash flow expectation of $3 billion.
Despite a 17% increase in capacity, total revenue per available seat mile (TRASM increased 1%, driven by international passenger revenue, which grew 61%. The greatest strength was in Southern European destinations, but both the Pacific region and South America/Caribbean were also up strongly. Delta is seeing declining non-fuel unit costs as we move through the year, driven by scale efficiencies and double-digit decline in fuel cost.
The 2023 estimate is up nearly 21% while the 2024 estimate is up 6% in the last 30 days.
American Airlines Group Inc. (AAL - Free Report)
American Airlines beat on revenue by 2.3% and on earnings by 21.5%. The Zacks Rank #3 company’s full-year earnings guidance was raised to between $3.00 and $3.75 a share.
Like the others, American is seeing significant decline in fuel cost. But unlike them, it expects labor costs to increase in the near term (pilots are going to be paid on par with United and flight attendants are looking for 35% pay hikes). The airline also expects a decline in the revenue per seat mile as it runs more flights during the current quarter. Therefore, the near-term outlook spoke to increased uncertainty and hit share prices.
AAL estimates are up 5% for 2023 and 3% for 2024 in the last 30 days.
Bottom Line
There are several positive factors driving airlines stocks right now, not the least of which is the economic growth we’ve had over the last few years that was not supported by normal business activity. Now that pandemic-era restrictions are lifted, the expansion in the economy should generate growth in travel. While these factors are positive for all airlines, those with international exposure and pricing power are no doubt the ones that will outshine others.
One-Month Price Performance
Image Source: Zacks Investment Research