The past week saw airline behemoth Delta Air Lines, Inc. (DAL) kickstarting the fourth quarter earnings season in the airline space. The Atlanta, GA-based carrier exited 2014 on a strong note reporting higher-than-expected earnings and revenues.
Delta also announced its plans to launch daily nonstop flights between Shanghai, China and Los Angeles from July 2015.
Southwest Airlines Co. (LUV) grabbed headlines during the week, albeit for the wrong reasons, when the U.S. Department of Transportation levied a hefty fine ($1.6 million) on the carrier for violating rules pertaining to tarmac delay.
During the week, Latin American company Copa Holdings SA (CPA) reported healthy growth (7.9%) in traffic for Dec 2014. On the other hand, United Airlines, the subsidiary of United Continental Holdings, Inc. (UAL), announced that it has added 55 flights on 8 routes to Phoenix between Jan 29 and Feb 2 for the Big Game. Other carriers such as JetBlue Airways Corp. (JBLU) and Southwest Airlines have also added flights for the purpose.
Overall, it has been a bullish week for the sector. The NYSE ARCA Airline index gained 4.3% over the last 5 trading days. In fact, the airline sector is seeing good times with stocks exhibiting impressive upward momentum on the back of weak oil prices
(Read last to last week’s developments here: Airline Stock Roundup for Jan 14, 2015)
Recap of Most Important Stories of the Last 5 Trading Days
1. Delta Air Lines reported fourth-quarter 2014 adjusted earnings of 78 cents per share, surpassing the Zacks Consensus Estimate of 75 cents. Revenues increased 6% year over year to $9.65 billion and were ahead of the Zacks Consensus Estimate of $9.59 billion.
Fuel expenses during the quarter declined $342 million on the back of lower market prices and higher refinery profits. The average fuel cost at Delta during the quarter was $2.62 per gallon (including the impact of fuel hedges), much lower than that recorded a year ago.
The company also estimates weak oil prices to result in over $2 billion savings in fuel costs for 2015 compared to 2014. The earnings beat and the encouraging prediction led to a positive impact on the shares (read more: Delta Air Lines Beats Q4 Earnings on Strong Revenues).
Delta also announced that it will launch daily nonstop flights between Shanghai, China and Los Angeles. After gaining regulatory approvals, Delta will start operating on the Los Angeles–Shanghai route from Jul 9, 2015. The move reflects the carrier’s intentions to strengthen its presence in Asia (read more: Delta to Connect Los Angeles-Shanghai to Boost Asia Services).
2. The U.S. Department of Transportation imposed a $1.6 million fine on Southwest Airlines for violating federal rules involving lengthy tarmac delays in Jan 2014. The hefty fine, which is also incidentally the largest civil penalty assessed against a carrier for flouting tarmac delay rules, was levied after an investigation by DOT’s Aviation Enforcement Office revealed that flights of the company experienced tarmac delays at Chicago Midway International Airport in excess of three hours. Passengers on multiple Southwest flights, which were delayed at Midway due to severe winter, were not given an opportunity to deplane within three hours of arrival by the carrier primarily due to staff shortage.
3. Copa Holdings, a leading provider of passenger and cargo services in Latin America, posted impressive air traffic results for Dec 2014. Consolidated revenue passenger miles or RPMs for the month grew 7.9% from the prior-year quarter. Consolidated capacity or available seat miles (ASMs) were 1879.7 million, up 10.3% year over year. On a consolidated basis, load factor (a measure of capacity utilization) declined 170 basis points (bps) to 76% from the year-ago period.
For 2014, on a consolidated basis, Copa generated RPMs of 15.9 billion (up 9.5% year over year) and ASMs of 20.76 billion (up 9.5% year over year), while load factor was flat at 76.7%.
4. In a bid to meet the increased travel demand from football fans for one of the biggest sporting weekends of the year, Southwest Airlines has introduced additional non-stop flights to Phoenix from Seattle & New England. The additional flights will be operated between Jan 29 and Feb 2 to carry enthusiastic fans to Phoenix for the Big Game. Fans on Southwest flights during the big game will be able to catch the action thanks to the live telecast on Wi-Fi enabled aircraft.
In the same vein, United Airlines too has introduced additional flights to Phoenix for the Big Game. The carrier has added 55 flights on 8 routes to Phoenix from Jan 29 to Feb 2 for the big game.
Performance
The following table shows the price movement of the major airline players over the last 5 trading days and during the last 6 months.
|
Company |
Last 5 Trading Days |
Last 6 months |
|
ALK |
4.34% |
33.61% |
|
HA |
0.12% |
89.86% |
|
JBLU |
2.53% |
42.11% |
|
AAL |
4.54% |
24.18% |
|
UAL |
1.66% |
55.36% |
|
SAVE |
4.39% |
9.38% |
|
LUV |
-0.28% |
47.47% |
|
DAL |
5.58% |
32.36% |
|
CPA |
9.09% |
-27.08% |
|
GOL |
-5.61% |
-17.72% |
As the above chart suggests, most of the major airline stocks gained over the last 5 trading days. Copa Holdings emerged as the biggest gainer during the period with its shares rising 9.09%. Hawaiian Holdings Inc. witnessed the highest upside (89.86%) over the last six months.
What’s Next in the Airline Biz?
The coming week will be flooded by earnings reports from major players in the airline sector like United Continental Holdings , Southwest Airlines, Alaska Air Group, Inc. (ALK) and American Airlines Group (AAL). We expect Alaska Air Group to report better-than expected earnings as it possesses a positive Earnings ESP and a Zacks Rank #1 (Strong Buy).
Even though American Airlines, United Continental and Southwest also carry a Zacks Rank #1, their respective earnings ESPs are negative. According to our model, a stock needs to have both a positive earnings ESP and a Zacks Rank #1, 2 (Buy) or 3 (Hold) for us to confidently predict an earnings beat.
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