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After Delta's (DAL) Latest Woes, Are Airline Stocks Worth Consideration?

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Delta Air Lines’ (DAL - Free Report) string of woes continued into Wednesday after the company cancelled 255 more flights, higher than its previous expectation of 90 flights. This comes after 775 cancellations on Tuesday and 1,000 on Monday. Delta had experienced a power outage on Monday, which went on to affect computer systems and thusly the company’s global operations.

Southwest Air Lines (LUV - Free Report) went through the same situation about three weeks before, when a router failure ultimately resulted in the cancellation of 2,000 flights and delays for another 7,000. In July, United Continental Holdings (UAL - Free Report) also experienced a router issue, which resulted in a two-hour delay for all flights globally.

The airline industry is difficult to invest in, since it is exposed to many different macroeconomic factors, and is notably hurt whenever companies experience any kind of service disruption. World-renowned investor Warren Buffett once said that “Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results.”

Let’s take a look at some major airliner’s recent performance, and if they might be on track to prove Mr. Buffett wrong.

Delta Air Lines

Delta Air Lines was down 1.6% in afternoon trading on Wednesday on the aforementioned news.

The company has seen downward earnings estimate revisions for every period in the foreseeable future. Current quarter estimates stand at $1.76 in earnings per share, down from the $1.88 estimate 60 days ago. Current fiscal year estimates stand at $5.92 per share, which is down from the $6.41 estimate 60 days ago.

Although Delta reported better-than-expected earnings in Q2, it has to deal with currency headwinds and a shift in consumer sentiment due to recent terror attacks. The airline industry sits in the bottom 8% of the Zacks Rank, so I wouldn’t expect anything special in the near future.

DELTA AIR LINES Price and EPS Surprise

DELTA AIR LINES Price and EPS Surprise | DELTA AIR LINES Quote

Delta currently sits at a Zacks Rank #5 (Strong Sell),

Southwest Air Lines

Southwest Air Lines has brought its operations back to normal, but shares have not recovered to pre-outage levels. As we have discussed, the company has not yet settled an agreement with its unions, missed Q2 earnings estimates, has outdated technology, and is engaged in ticket pricing wars with fellow discount airliners which are hurting revenues.

The culmination of these concerns along with downward earnings estimate revisions makes it difficult to believe that Southwest is out of the woods. Current quarter estimates stand at $0.93 in earnings per share, down from the $1.09 estimate of 60 days ago. Current fiscal year estimates are down to $3.95 from $4.23 per share.

SOUTHWEST AIR Price and EPS Surprise

SOUTHWEST AIR Price and EPS Surprise | SOUTHWEST AIR Quote

Southwest currently sits at a Zacks Rank #5 (Strong Sell).

United Continental Holdings

United beat Q2 earnings expectations, but saw a 21.1% and 5.2% respective year-over-year decline in earnings per share and revenues. However, the company did also buy back $694 million worth of shares, with $255 million remaining under its current program, and approved another $2 billion worth of buybacks.

The company will launch a business traveler focused service, United Polaris, later in the year. These new initiatives reflect increased management confidence in United’s outlook, but earnings estimate revisions still serve as some cause for concern.

Current quarter estimates are down to $2.84 per share from the original $2.97 estimate. Fiscal year estimates stand at $7.94, down from the previous $8.27 estimate. Given the company’s storied history and potentially new source of revenue, United could still be worth keeping an eye on moving forward.

UNITED CONT HLD Price and EPS Surprise

UNITED CONT HLD Price and EPS Surprise | UNITED CONT HLD Quote

United currently sits at a Zacks Rank #3 (Hold).

JetBlue Airways

Like Southwest, JetBlue Airways (JBLU - Free Report) is a discount airliner, operating an average of 800 daily flights and carrying 30 million customers annually. Concerns with the company include increasing maintenance costs due to its use of an older fleet and engines. Along with being subject to the same headwinds as industry peers, JetBlue is also losing revenue on competitive ticket pricing.

However the company did also report increased traffic growth in July, which is a healthy sign. Still, JetBlue has seen multiple downward earnings estimate revisions. Current quarter estimates are down three cents to $0.57, while fiscal year estimates are down 14 cents to $2.14.

JETBLUE AIRWAYS Price and EPS Surprise

JETBLUE AIRWAYS Price and EPS Surprise | JETBLUE AIRWAYS Quote

JetBlue currently sits at a Zacks Rank #5 (Strong Sell).

American Airlines

American Airlines (AAL - Free Report) recently made news when it reached an agreement with 30,000 employees, agreeing to provide them an average pay raise of 22%. As we noted with Southwest, union discontent can be a major source of concern for airliners, and this recent news serves to quell that concern for American.

Furthermore, American beat Q2 earnings expectations, posting its 11th consecutive positive surprise. Unlike discount airliners, it has benefited from the oil glut, and expects to save money due to lowered fuel costs. The company also bought back $1.7 billion worth of stock in Q2 and paid out $58 million in dividends.

American is pouring money into new airliners, having retired 31 aircraft in Q2 and investing $1.2 billion towards new aircraft during the quarter. However, like every other airliner, it has seen downward earnings estimate revisions. Current quarter estimates are down 19 cents to $1.54, while fiscal year estimates are down 25 cents to $5.44.

AMER AIRLINES Price and EPS Surprise

AMER AIRLINES Price and EPS Surprise | AMER AIRLINES Quote

American currently sits at a Zacks Rank #3 (Hold).

Bottom Line

The airline industry as a whole has fallen on hard times, again. Each company has seen a drop in Passenger Revenue per Available Seat Mile (PRASM), which is a key metric for these companies. Furthermore, a stronger U.S. dollar, Brexit, and terror attacks are a few of the many factors that have impacted tourism and spending in general.

Although some companies are working on promising new initiatives, the airline industry has plenty of work ahead. Then again, it always does.

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