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Airline Stock Roundup: Q3 Earnings at AAL, LUV & Others, Bullish Thanksgiving View

The past week in the airline space was mostly about numbers, with several airline companies like American Airlines Group AAL, Southwest Airlines LUV, Spirit Airlines SAVE and Allegiant Travel Company ALGT reporting their respective third-quarter 2017 earnings results.

Markedly, the common trend in the quarterly reports of the above-mentioned companies was the year-over-year decline in earnings due to higher costs. Apart from high labor costs, rise in oil prices also hurt the bottom line as fuel-related expenses increased. In addition to high costs, back-to-back hurricanes (Harvey, Irma and Maria) and the earthquake in Mexico also distorted the earnings picture.

Despite the headwinds, most sector participants reported better-than-expected earnings per share in Q3. In view of these headwinds, the earnings per share estimates have been trimmed over the past few months.

With the bar (pertaining to earnings estimates) being lowered significantly, courtesy the drastic downward revisions, it is of little surprise that most carriers have managed to beat the (highly conservative) Zacks Consensus Estimate in the third quarter.

Moreover, the fact that the NYSE ARCA Airline Index has declined 4.5% to $106.42 over the past five trading days. This further substantiates the fact that the series of earnings beat in the airline space have failed to cheer investors.

The only notable update on the non-earnings front came from the Airlines for America (“A4A“). The leading trade group, predicted that 28.5 million passengers will opt for air travel in the upcoming Thanksgiving holiday period (Nov 17 – Nov 28), implying a 3% increase from the 2016 figure. 

Transportation - Airline Industry 5YR % Return

Transportation - Airline Industry 5YR % Return

(Read the last Airline Stock Roundup for Oct 25, 2017).

Recap of the Past Week’s Most Important Stories

1. American Airlines’ third-quarter 2017 earnings (excluding 14 cents from non-recurring items) of $1.42 per share surpassed the Zacks Consensus Estimate by 3 cents. However, quarterly earnings declined significantly on a year-over-year basis due to high costs. Results were also hurt by the recent hurricanes. Revenues of $10,878 million were 2.7% above the year-ago figure (read more: American Airlines Q3 Earnings Top Estimates, Fall Y/Y).

2. Southwest Airlines reported better-than-expected earnings but lower-than-expected revenues in the third quarter of 2017. The carrier’s earnings per share (excluding 4 cents from non-recurring items) of 88 cents beat the Zacks Consensus Estimate of 87 cents. The bottom line, however, declined 5.4% on a year-over-year basis.

Operating revenues of $5,271 million lagged the consensus mark of $5,296.6 million but improved 2.6% year over year. Passenger revenues accounted for the bulk of 90% (read more: Southwest Airlines Beats on Q3 Earnings, Misses Revenues).

3 Alaska Air Group ALK reported third-quarter earnings (excluding 10 cents from non-recurring items) of $2.24 per share, which fell short of the Zacks Consensus Estimate of $2.25. Revenues came in at $2,120 million, below the consensus estimate of $2,166.2 million.

The top line, however, rallied 35.4% on a year-over-year basis. Additionally, passenger revenues that accounted for bulk of the top line (86%), improved 38% on a year-over-year basis (read more: Alaska Air Group Q3 Earnings, Revenues Miss Estimates).

4. Spirit Airlines’ third-quarter earnings (excluding 7 cents from non-recurring items) came in at 94 cents per share, surpassing the Zacks Consensus Estimate of 90 cents. The bottom line however, plunged 24.2% on a year-over-year basis. Operating revenues of $687.2 million was marginally ahead of the Zacks Consensus Estimate $686.6 million.

The top line also improved 10.6% year over year owing to a 14% rise in non-ticket revenues. In the reported quarter, total revenue per available seat mile decreased 6.3% (read more: Spirit Airlines Up on Q3 Earnings & Revenues Beat).

5. Allegiant Travel Company’s third-quarter earnings per share came in at $1.39 per share, 2 cents above the Zacks Consensus Estimate. The bottom line, however, contracted 49.5% on a year-over-year basis, due to high costs. Hurricane Irma also hurt results as the company had to cancel multiple flights due to the calamity.

Quarterly revenues increased 4.6% year over year to $348.8 million, missing the Zacks Consensus Estimate of $350.1 million (read more: Allegiant Q3 Earnings Beat Estimates, Sales Miss).

6. According to a forecast by A4A, approximately 28.5 million passengers are expected to avail the services of U.S. airlines during the Thanksgiving holiday period this year, up 3% year over year. The forecast translates into 2.38 million fliers per day during the period, which is an increase of 69,000 from the comparable figure last year.

Passenger volumes (on a daily basis) is projected to be in the range of 1.61 million to 2.88 million. The busiest day for the holiday period is expected to be Nov 26. The lightest travel day is expected to be the Thanksgiving Day, Nov. 23, 2017. Markedly, cheap ticket prices are one of the main reasons behind the bullish forecast. To meet the surge in demand, carriers are adding more seats (86,000 per day).

Performance

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

Company

Past Week

Last 6 months

HA

-19.5%

-38.3%

UAL

-2.4%

-16.7%

GOL

-9.5%

34.8%

DAL

-6.1%

10.1%

JBLU

-5.9%

-12.3%

AAL

-9.8%

9.8%

SAVE

9.7%

-35.2%

LUV

-8.4%

-4.2%

CPA

-2.1%

6.8%

ALK

-17.1%

-22.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that all airline stocks apart from Spirit Airlines traded in the red in the past week leading to the NYSE ARCA Airline Index’s significant decline. Over the last six months, the sector tracker lost 5.1%, despite gains at Latin American carriers GOL Linhas and Copa Holdings CPA. Copa Holdings carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

What's Next in the Airline Space?

Focus will be on the impact of the New York City terror attack on airline stocks. Generally, such acts of terrorism impact airline stocks as there is a possibility of waning travel demand due to security fears. Investors will also await October traffic reports from the likes of Delta Air Lines DAL.

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Southwest Airlines Company (LUV): Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
 
Copa Holdings, S.A. (CPA): Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE): Free Stock Analysis Report
 
Allegiant Travel Company (ALGT): Free Stock Analysis Report
 
American Airlines Group, Inc. (AAL): Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK): Free Stock Analysis Report
 
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