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Airline Stock Roundup: DAL & UAL's Earnings Beat, AAL's Bullish Q2 View & More

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In the past week, Delta Air Lines (DAL - Free Report) kick-started the second-quarter 2019 earnings season for the airline space. This Atlanta, GA-based carrier not only reported better-than-expected earnings and revenues but also raised its bottom-line projection for the current year. Adding to the list of positives, Delta’s board of directors announced a 15% hike in its quarterly dividend payout.

Like Delta, United Airlines Holdings (UAL - Free Report) also outperformed with respect to earnings and revenues in the second quarter. Furthermore, this Chicago-based carrier raised the lower end of its current-year earnings guidance. For 2019, the company now expects earnings between $10.5 and $12 per share (earlier view: $10-$12). The mid-point of the guided range ($11.25 per share) is above the Zacks Consensus Estimate of $11.2.

American Airlines Group (AAL - Free Report) was another major newsmaker over the past week. Despite flight cancellations due to the grounding of Boeing 737 MAX jets, the company issued a bullish view on second-quarter total revenue per available seat mile (TRASM: a key measure of unit revenues).

With 24 Boeing 737 MAX jets in its fleet, American Airlines announced the extension of the grounding period of the jets through Nov 2 from Sep 3 during the past week. The carrier is slated to release its second-quarter 2019 results on Jul 25.

Alaska Air Group (ALK - Free Report) , scheduled to report second-quarter 2019 results on Jul 25, also boosted its unit revenue guidance for the to-be-reported quarter. Additionally, this Seattle, WA- based carrier provided an improved outlook for non-fuel unit costs.

(Read the last Airline Stock Roundup here).

Recap of Past Week’s Most Important Stories

1. Delta’s second-quarter 2019 earnings (excluding 14 cents from non-recurring items) of $2.35 per share outpaced the Zacks Consensus Estimate of $2.29 and increased 32.8% on a year-over-year basis. Operating revenues totaled $12,536 million, which surpassed the Zacks Consensus Estimate of $12,499 million. The reported figure compared favorably with the year-ago number. For the third quarter, Delta expects earnings (excluding special items) between $2.10 and $2.40 per share. For 2019, the company projects earnings per share between $6.75 and $7.25 (earlier view: $6-$7 per share). (Read more: Delta Stock Up on Q2 Earnings Beat, Upbeat View).

Delta sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

2. United Airlines’ second-quarter 2019 earnings (excluding 19 cents from non-recurring items) of $4.21 per share surpassed the Zacks Consensus Estimate of $4.07. The bottom line also improved more than 30% year over year mainly on lower fuel costs.

Operating revenues increased 5.8% to $11,402 million in the quarter and also exceeded the Zacks Consensus Estimate of $11,358.5 million. Higher passenger revenues provided a boost to the top line. Passenger revenues, accounting for bulk (92%) of the top line, increased 6.1%, mirroring strong demand for air travel.

United Airlines anticipates third-quarter capacity to expand between 2% and 3%, while pre-tax margin (adjusted) is estimated in the 10-12% range. Passenger unit revenues are projected to increase 0.5-2.5% year over year. For 2019, capacity is now estimated to expand 3-4% year over year compared with an increase of 4-5% expected while releasing first-quarter 2019 results in April. The airline anticipated capacity to rise in the band of 4-6% while releasing fourth-quarter 2018 results in January.  The company’s decision to successively trim its capacity growth forecast might be due to the grounding of Boeing 737 MAX jets. The carrier, with 14 such jets in its fleet, expects them to remain grounded through Nov 3.

3. In an investor update, American Airlines stated that it was compelled to cancel 7,800 flights in the second quarter of 2019 (the April-June period) as the 737 MAX jets in its fleet were non-operational. Following the flight cancellations, American Airlines anticipates its second-quarter pre-tax income to be hurt to the tune of roughly $185 million. The impact of Boeing 737 MAX grounding on full-year pre-tax income is expected to be revealed by the company on the second-quarter conference call.

Additionally, the carrier now expects second-quarter TRASM’s year-over-year growth in the 3-4% range compared with the 1-3% range predicted earlier. This Fort Worth, TX-based carrier attributed its decision to increase the TRASM projection to higher-than-expected load factor (% of seats filled by passengers) across the system.

Despite the numerous flight cancellations, American Airlines’ projection for non-fuel unit costs has not been increased drastically. This reflects the company’s prudent cost management. For the second quarter, it expects unit costs (excluding fuel and special items) to increase between 4.5% and 5.5% (earlier view: 3.5-5.5% band). Additionally, American Airlines anticipates fuel costs per gallon between $2.12 and $2.17.  (Read more: American Airlines Stock Up on Bullish Q2 Unit Revenue View).

4. Alaska Air Group now anticipates second-quarter 2019 revenue per available seat miles (RASM) in the range of 13.44-13.47 cents, representing an approximate rise of 5% year over year. Previously, RASM was anticipated between 13.26 cents and 13.45 cents, reflecting an increase in the 3-5% band.

Additionally, cost per available seat miles, excluding fuel and special items, is projected between 8.33 cents and 8.35 cents, indicating an increase of approximately 2.5% from the prior-year reported number. Previously, the metric was anticipated between 8.45 cents and 8.5 cents, reflecting a rise of approximately 4% year over year. The estimate for economic fuel cost per gallon has now been increased to $2.27 from the earlier forecast of $2.25. The new projection indicates a 1.3% decline year over year.

On a separate note, Alaska Air Group’s load factor (% of seats filled by passengers) for June declined 10 basis points (bps) to 88.2% as traffic growth (1.7%) was outpaced by capacity expansion (1.9%).

5. Spirit Airlines (SAVE - Free Report) expects second-quarter 2019 TRASM to increase 5% on a year-over-year basis. Increase in yield as well as load factor (% of seats filled by passengers) is anticipated to boost TRASM growth in the to-be-reported quarter. Total revenues are expected to grow approximately 19%. Non-fuel unit costs are anticipated to increase roughly 4.6%. Fuel cost per gallon is anticipated to be $2.16. The adjusted effective tax rate is projected to be 24%.

Performance

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

The table above shows that all airline stocks barring GOL Linhas traded in the green over the past week, leading to the NYSE ARCA Airline Index’s 3% gain. Over the course of six months, the NYSE ARCA Airline Index appreciated 7.8% on the back of GOL Linhas huge gain (83.7%).

What’s Next in the Airline Space?

Investors will keenly await second-quarter 2019 earnings reports from the likes of JetBlue Airways (JBLU - Free Report) and Southwest Airlines (LUV - Free Report) on Jul 23 and 25, respectively.

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