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Airlines ETF Riding High on Q4 Earnings

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It’s been close to two weeks since Delta Air Lines Inc. (DAL - Free Report) kick-started the fourth-quarter earnings season for the airline space. Overall, the season has been mixed-to-upbeat for the industry. Ancillary revenues helped the operators make up for the higher fuel costs in 2018. The airline companies belong to a top-ranked Zacks industry (top 4%) and top-ranked Zacks sector (top 38%). Lets’ delve a little deeper.

Inside the Headlines

Delta’sfourth-quarter earnings (excluding 19 cents from non-recurring items) of $1.30 per share surpassed the Zacks Consensus Estimate by 3 cents. Moreover, the bottom line increased on a year-over-year basis. Operating revenues of $10,742 million, however, fell short of the Zacks Consensus Estimate of $10,828.7 million. Revenues increased 4.9% from the year-ago figure.

United Continental Holdings (UAL - Free Report) reported better-than-expected earnings and revenues in the fourth quarter of 2018. The company’s earnings (excluding 71 cents from non-recurring items) of $2.41 per share surpassed the Zacks Consensus Estimate of $1.86. Moreover, the bottom line showed a massive year-over-year improvement. Operating revenues came in at $10.49 billion, outpacing the Zacks Consensus Estimate of $10.37 billion. Additionally, the top line rose significantly year over year.

American Airlines Group Inc.’s (AAL - Free Report) fourth-quarter 2018 earnings (excluding 35 cents from non-recurring items) of $1.04 per share surpassed the Zacks Consensus Estimate of $1.02. Moreover, the bottom line increased on a year-over-year basis.

Revenues of $10.938 billion missed the Zacks Consensus Estimate of $11.007 billion. However, the top line improved on a year-over-year basis. Strong demand for air travel led to this year-over-year improvement in the top line.

Low-cost carrier Southwest Airlines Co. (LUV - Free Report) delivered fourth-quarter 2018 earnings per share of $1.17, beating the Zacks Consensus Estimate of $1.06. Results were aided by stronger revenues, higher yields and better cost management.

Operating revenues of $5.704 billion outpaced the Zacks Consensus Estimate of $5.677 billion. The top line also rose year over year. Passenger revenues, accounting for the bulk (93.2%) of the top line, improved 8.6% year over year.

JetBlue Airways Corporation’s (JBLU - Free Report) fourth-quarter 2018 earnings (excluding 5 cents from non-recurring items) of 50 cents per share surpassed the Zacks Consensus Estimate by 8 cents and increased 56.3% year over year. The bottom line was driven by the company’s prudent non-fuel cost management.

Total revenues came in at $1,968 million, which edged past the Zacks Consensus Estimate of $1,965.4 million and increased 12% year over year. Passenger revenues, which accounted for bulk of the top line (96.1%), improved 12.1% in the quarter under review. Other revenues were up 8.8%.

Alaska Air Group Inc. (ALK - Free Report) delivered fourth-quarter 2018 earnings per share (excluding 56 cents from non-recurring items) of 75 cents, surpassing the Zacks Consensus Estimate of 73 cents. Revenues came in at $2,064 million, above the Zacks Consensus Estimate of $2,057.3 million. The top line also rose year over year. Passenger revenues, accounting for a bulk (92.4%) of the top line, were up 6% on a year-over-year basis.

ETF in Focus

Since results were mixed-to-upbeat, investors having a strong stomach for oil-related risks may go for a basket approach or invest in U.S. Global Jets ETF (JETS - Free Report) . This approach makes up for company-specific concentration risks as one company’s weakness compensates for another company’s strength (read: Winning and Losing Sectors ETFs Post OPEC Decision).

JETS in Focus

The $83.6 million-fund holds more than 30 stocks in its portfolio and is concentrated on a few individual securities. Southwest Airlines (12.81%), American Airlines (12.40%), United Continental (11.33%) and Delta Airlines (10.04%) take the first four positions in the fund.

Alaska Air and JetBlue hold the fifth and seventh positions in the fund with a 4.04% and 3.92% weight, respectively. The product charges 60 bps in fees and has gained about 9.4% in the past month (as of Jan 29, 2019) (see all industrials ETFs).

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