The past week saw low-cost carrier Southwest Airlines (LUV Quick QuoteLUV - Free Report) stock losing value despite reporting better-than-expected earnings as well as revenues in the third quarter. The stock suffered mainly due to its lackluster guidance with respect to revenue per available seat mile (RASM: a measure of unit revenues). The carrier expects the metric to fall in the band of 4–5% in the fourth quarter, which compares unfavorably to the views of its peers for unit revenues.

The past week also saw SkyWest, Inc. (SKYW Quick QuoteSKYW - Free Report) and Allegiant Travel Company (ALGT Quick QuoteALGT - Free Report) reporting better-than-expected third-quarter results. On the non-earnings front, Airlines for America (‘A4A’), a leading trade group, predicted that 27.3 million passengers will opt for air travel in the upcoming Thanksgiving holiday period. The projection reflects a 2.5% increase from the 2015 figure. The International Air Transport Association (“IATA”) has issued a bullish long-term forecast with passenger demand predicted to nearly double in 2035 from the 2016 levels.

(Read the last Airline Stock Roundup for Oct 26, 2016).

Recap of the Past Week’s Most Important Stories

1. Southwest Airlines’ third-quarter 2016 earnings per share (on an adjusted basis) of 93 cents beat the Zacks Consensus Estimate of 88 cents. Moreover, the carrier’s revenues of $5,139 million edged past our expectation of $5,132 million. The adverse impact of  rising labor costs on carriers’ bottom line can be clearly made out from Southwest Airlines’ cost per available seat mile (CASM) forecast. The carrier expects CASM – excluding special items and profit sharing – to increase in the band of 4–5% in the final quarter of 2016, which is much more than the 2.6% increase witnessed in the third quarter (Read more: Southwest Airlines Beats on Q3 Earnings & Revenues).

The significance of labor deals was once again highlighted when the flight attendants of the low-cost carrier ratified the tentative pay-related deal inked last month. The contract becomes amendable on Nov 1, 2018.

2. St. George, UT-based SkyWest report impressive numbers for the third quarter of 2016. The carrier outperformed both in terms of earnings and revenues. The carrier’s earnings of 90 cents per share were well ahead of the Zacks Consensus Estimate of 81 cents. Earnings also improved approximately 26.8% from the year-ago figure. Quarterly revenues of $800 million comfortably beat the Zacks Consensus Estimate of $773 million and inched up approximately 1% on a year-over-year basis. Results were aided by lower operating costs due to fewer aircraft in service.

3. Allegiant Travel Company’s third-quarter 2016 earnings per share of $2.75 beat the Zacks Consensus Estimate by 9 cents. Quarterly revenues increased 11% year over year to $333 million and also surpassed the Zacks Consensus Estimate of $332 million. Air traffic rose 18.3% year over year due to a 20.2% rise in capacity, while load factor was 84.7% compared with 86.1% in the year-ago quarter. Average fuel expense declined 13.7% to $1.57 per gallon in the reported quarter.

For the fourth quarter of 2016, the company expects cost per available seat mile (CASM), excluding fuel, to grow in the range of 10–12%, primarily driven by the implementation of the new pilot agreement. The five-year deal became effective on Aug 1, 2016. Total revenue per available seat mile (TRASM) in the fourth quarter is likely to decline in the band of 5.5–7.5%.

4. According to a forecast by A4A, approximately 27.3 million passengers are expected to avail the services of U.S. airlines during the Thanksgiving holiday period this year, up 2.5% year over year. The forecast translates into 2.27 million fliers per day during the period (Nov 18–Nov 29), an increase of 55,000 from the comparable figure last year. Passenger volumes (on a daily basis) is projected to be in the range of 1.51 million to 2.81 million. The busiest day for the holiday period is expected to be Sunday, Nov 27. The lightest travel day is expected to be the Thanksgiving Day or Nov 24, 2016.

Cheap ticket prices are one of the main reasons behind the bullish forecast. According to the organization, air fares have fallen 5.6% on a year-over-year basis in the first nine months of the year. To meet the surge in demand, carriers are adding more seats (74,000 per day). In keeping with the rising demand, they intend to use either larger planes or introduce more flights.

5. The IATA issued a bullish long-term forecast regarding passenger travel, which is for the beleaguered airline industry. The association expects air travel to attract 7.2 billion passengers in 2035, almost double the 3.8 billion estimated for 2016. The Asia-Pacific region is expected to see the highest demand in air travel and is expected to be responsible for more than half the new passengers over the next two decades. The U.S. is expected to be dislodged from its position of top aviation market by China by 2024.

6. According to media reports, passengers at an American Airlines Group (AAL Quick QuoteAAL - Free Report) flight survived had a narrow escape as an engine failed just before the plane was to take off at Chicago's O'Hare International Airport. The engine caught fire and its debris apparently flew as far as half a mile from the scene of the mishap. The incident is being investigated by the National Transportation Safety Board.

Performance

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

The table above shows most of the airline stocks traded in the red over the past week. The NYSE ARCA Airline index was almost flat at $94.97 over the period. Shares of Southwest Airlines depreciated the most (9.84%) mainly due to its disappointing guidance. Over the course of six months, the NYSE ARCA Airline index appreciated 6.88%.

What's Next in the Airline Space?

Latin American carriers GOL Linhas and Copa Holdings (CPA Quick QuoteCPA - Free Report) are scheduled to report third-quarter numbers on Nov 7, and Nov 8, respectively. Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. On the non-earnings front, multiple October traffic reports are expected over the next few days. Further updates on the proposed takeover of Virgin America by Alaska Air Group (ALK Quick QuoteALK - Free Report) are also keenly awaited.

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