The past week saw the Atlanta, GA-based Delta Air Lines (DAL - Free Report) kick-starting the third-quarter earnings season for the airline space. While the carrier outperformed with respect to the bottom line, the top line lagged expectations. Moreover, both earnings and revenues declined on a year-over-year basis as the power outage in August weighed on results.
Chicago-based United Continental Holdings (UAL - Free Report) , on the other hand, outperformed on both the top and bottom-line front in the third quarter. However, the carrier saw its results deteriorating year over year due to declining fares. Hawaiian Holdings Inc. (HA - Free Report) too reported better-than-expected earnings and revenues in the third quarter.
On the non-earnings front, JetBlue Airways Corp. (JBLU - Free Report) and GOL Linhas (GOL - Free Report) disclosed their respective traffic numbers for September. Additionally, the Bureau of Transportation Services (BTS) revealed that average airfares (on an unadjusted basis) in the U.S. declined in Sep 2016 from the year-ago figure.
On the price front, NYSE ARCA Airline index gained 3.10% in the past week to $95.14.
(Read the last Airline Stock Roundup for Oct 12, 2016).
Recap of the Past Week’s Most Important Stories
1. Delta Air Lines’ third-quarter earnings (excluding special items) of $1.70 per share beat the Zacks Consensus Estimate by 5 cents. The bottom line, however, declined 2.3% on a year-over-year basis. Operating revenues of $10,483 million missed the Zacks Consensus Estimate of $10,595 million. Revenues declined 6% from the year-ago figure, mainly due to the power outage in August. However, the capacity growth guidance for 2017 is encouraging. Capacity is projected to expand 1% next year, in line with the guidance for fourth quarter (Read more: Delta Air Lines Beats on Q3 Earnings, Misses Sales).
2. United Continental’s third-quarter 2016 earnings (on an adjusted basis) of $3.11 per share beat the Zacks Consensus Estimate by 6 cents. The bottom line, however, plunged 31.35% year over year. Operating revenues of $9,913 million in the third quarter edged past the Zacks Consensus Estimate of $9,899 million. However, revenues decreased 3.8% on a year-over-year basis. The decline in revenues can be attributed to factors like a stronger U.S. dollar and lower surcharges, to name a few (Read more: United Continental Beats on Q3 Earnings and Sales).
3. JetBlue’s traffic update for September reflected a significant increase in the metric. Revenue passenger miles (RPMs) – a measure of traffic – climbed 10.8% year over year to 3.43 billion. Average seat miles (ASMs) – a measure of capacity – grew 7.9% to 4.13 billion in Sep 2016. Load factor (percentage of seats filled by passengers) expanded 210 basis points (bps) to 83.2% in the month as traffic growth outpaced capacity expansion (Read more: JetBlue's Traffic and Capacity Grow in September).
4. GOL Linhas’ September traffic – measured in revenue passenger kilometers (RPK) – was 2.85 billion, down 1.2% from a year ago. Also, consolidated capacity (or available seat kilometers/ASKs) was down 3.4% on a year-over-year basis to 3.66 billion. The downside can be attributed to the 22.7% decline in international capacity. Load factor expanded 180 bps to 77.9% in Sep 2016 as traffic contraction was less than capacity decline.
Furthermore, in the month, the carrier witnessed an 18.9% decline in the volume of departures. The Latin American carrier sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
5. According to data released by the BTS, average airfares (unadjusted) fell 2.7% year over year in Sep 2016. Declining airfares have severely affected airline stocks for quite some time now by hurting their top line. According to research firm Hopper, airfares (domestic roundtrip) had declined to $216 in September. The firm predicts that domestic airfares will decline to $213 in October and hit a low of $210 in January.
6. Hawaiian Holdings’ third-quarter adjusted earnings of $1.92 per share were ahead of the Zacks Consensus Estimate by 10 cents. Quarterly revenues of $672 million also surpassed our expectation of $670 million. Results benefited from a 23.1% decline in economic fuel costs to $1.50 per gallon during the quarter.
Operating revenue per available seat mile in the quarter inched up 1.3% year over year. The metric is projected to grow in the band of 0.5–3.5% in the fourth quarter. Capacity is projected to grow in the band of 3–5% and 3–4% in fourth quarter and full-year 2016, respectively.
The following table shows the price movement of the major airline players over the past week and during the last 6 months.
Last 6 months
The table above shows almost all airline stocks traded in the green over the past week. Shares of GOL Linhas appreciated the most (22%). Over the course of six months, the NYSE ARCA Airline index depreciated 0.03%.
What's Next in the Airline Space?
The entire focus will be on earnings in the next few days. Airline heavyweights like American Airlines Group (AAL - Free Report) and Alaska Air Group (ALK - Free Report) are scheduled to report their respective third-quarter numbers on Oct 20. JetBlue Airways is scheduled to unveil its quarterly report on Oct 25.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>