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Airline Stock Roundup: Q2 Earnings Beat at AAL, LUV, ALK & SAVE

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In the past week, several airline companies like American Airlines (AAL - Free Report) , Southwest Airlines (LUV - Free Report) , Alaska Air (ALK - Free Report) , Allegiant Travel (ALGT - Free Report) and Spirit Airlines (SAVE - Free Report) released their respective second-quarter 2019 financial numbers.

Apart from Allegiant Travel, all the above-mentioned carriers reported better-than-expected earnings per share. However, shares of Spirit Airlines plunged despite the earnings beat due to its disappointing third-quarter view for cost per available seat mile (CASM), excluding fuel (non-fuel unit costs). Southwest Airlines too issued a bleak view for third-quarter non-fuel unit costs.

Also, American Airlines issued a bearish view for its current-year pre-tax income due to the grounding of Boeing 737 MAX jets. The company anticipates its current-year pre-tax income to be hurt to the tune of roughly $400 million compared with $350 million expected earlier. American Airlines, with 24 Boeing 737 MAX jets in its fleet, stated that the jets would remain grounded till Nov 2.

Meanwhile, Alaska Air unveiled a bullish view for its third-quarter 2019 total revenue per available seat mile (RASM: a key measure of unit revenues). The company envisions RASM to increase in the 2-5% range in the July-September period.

(Read the last Airline Stock Roundup here).

Recap of Past Week’s Most Important Stories

1. American Airlines’ second-quarter 2019 earnings (excluding 33 cents from non-recurring items) of $1.82 per share surpassed the Zacks Consensus Estimate by 5 cents. Moreover, the bottom line increased on a year-over-year basis. Revenues totaled $11,960 million, which came in line with the Zacks Consensus Estimate. However, the top line improved 2.7% on a year-over-year basis. Passenger revenues, which accounted for the bulk of the top line (92.1%), increased 3.2%.

TRASM increased 3.5% to 16.54 cents in the reported quarter. For the third quarter of 2019, the metric is expected to increase between 1% and 3% on a year-over-year basis. Pre-tax margin, excluding special items, is projected to be 5.5-7.5% in the third quarter. Additionally, fuel costs are estimated between $2.05 and $2.10 per gallon. The company predicts third-quarter non-fuel unit costs to increase in the 4-6% range. Capacity is expected to grow approximately 1.5% in the third quarter.

For 2019, capacity is expected to increase 1.5%. Non-fuel unit costs are now anticipated to increase in 3.5-4.5% range (previous guidance was in the 2-3% band). The uptick can be attributed to the reduction in capacity following the grounding of the American Airlines’ 737 MAX fleet. The company’s capex projection for the current year stays at $4.4 billion. American Airlines now expects 2019 earnings per share between $4.5 and $6 (earlier outlook:  $4- $6).

American Airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. Southwest Airlines delivered second-quarter 2019 earnings of $1.37per share, which outpaced the Zacks Consensus Estimate of $1.35. The bottom line also improved year over year despite higher costs related to the MAX groundings.

Operating revenues of $5,909 million lagged the Zacks Consensus Estimate of $5,933.2 million. However, the top line inched up 2.9% year over year. (Read more: Southwest Q2 Earnings Beat, Q3 & 2019 Cost View Dull)

3. Alaska Air delivered second-quarter 2019 adjusted earnings per share (excluding 6 cents from non-recurring items) of $2.17, beating the Zacks Consensus Estimate of $2.11. Moreover, the bottom line improved substantially year over year on higher revenues.Revenues came in at $2,288 million, which exceeded the Zacks Consensus Estimate of $2,282 million. The top line also rose year over year. (Read more: Alaska Air Q2 Earnings Surpass, Q3 RASM View Upbeat)

4. Spirit Airlines’ second-quarter 2019 earnings per share (excluding 2 cents from non-recurring items) of $1.69 surpassed the Zacks Consensus Estimate by 5 cents. The bottom line also improved 52.3% on a year-over-year basis despite higher costs. While adjusted operating expenses surged 14.8%, adjusted non-fuel unit costs increased 4.6% in the quarter under review. A severe storm during the Easter holiday weekend resulted in the cancellation of multiple flights, pushing up costs higher. The company incurred expenses of roughly $6 million due to passenger re-accommodation and disrupted crew costs.

What is worse is that the cost scenario is bleak even for third-quarter 2019. This ultra-low-cost carrier expects third-quarter non-fuel unit costs to increase in the 7-8% range on a year-over-year basis. Factors like the construction work at the Ft. Lauderdale airport, lower completion factor and expenses associated with flight disruptions resulted in this bearish view. (Read more: Spirit Q2 Earnings Top, Q3 CASM View Weak, Stock Down)

5. Allegiant Travel Company’s total earnings of $4.33 per share lagged the Zacks Consensus Estimate of $4.67. However, the bottom line increased almost 40% year over year. Meanwhile, total operating revenues increased 12.6% year over year to $491.8 million on the back of a 12.1% rise in passenger revenues. However, the top line missed the consensus mark of $505.2 million. Notably, quarterly earnings (airline operations) increased 49.8% year over year to $4.81 per share. Airline revenues increased 12% to $486.8 million. The company now expects earnings per share in the range of $13.50-$14.25 (earlier guidance: $13.25-$14.75) for the current year. (Read more: Allegiant Q2 Earnings & Revenues Miss, Increase Y/Y)

Price 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 most airline stocks traded in the red over the past week. Consequently, the NYSE ARCA Airline Index decreased 2.2%. Over the course of six months, the NYSE ARCA Airline Index gained 2.9%.

What's Next in the Airline Space?

Investors keenly await second-quarter 2019 earnings of SkyWest (SKYW - Free Report) and GOL Linhas (GOL - Free Report) , scheduled on Jul 31 and Aug 1, respectively.

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