The past week in the airline space was all about numbers, with several airline companies reporting their fourth-quarter earnings results. Key players in the industry like Southwest Airlines Co. (LUV), United Continental Holdings Inc. (UAL), American Airlines Group (AAL) and Alaska Air Group, Inc. (ALK) delivered impressive earnings, which beat the respective Zacks Consensus Estimate.
Results in the final quarter of 2014 are benefiting from low fuel costs. This is because fuel costs account for a major chunk of an airline's operating expenses.
The impressive fourth quarter results were primarily responsible for the NYSE ARCA Airline index gaining 3.25% over the last 5 trading days. In another development, JetBlue Airways (JBLU) grabbed headlines when it joined other carriers in introducing an additional flight to Phoenix for the Big Game.
Additionally, the snowstorm Juno that has hit the East Coast has resulted in massive flight cancellations during the week, thus hampering air travel across the country. However, we do not expect the storm to have a long-term impact on airline stocks.
(Read last week’s developments here: Airline Stock Roundup for Jan 21, 2015)
Recap of Most Important Stories of the Last Five Trading Days
1. United Continental reported higher-than-expected earnings in the fourth quarter of 2014. The company posted adjusted earnings of $1.20 per share, ahead of the Zacks Consensus Estimate of $1.14. Consolidated passenger revenue per available seat miles rose 0.4% year over year. Fuel costs declined 14.7% during the quarter (read more: United Continental Beats on Q4 Earnings, Revs in Line).
2. Alaska Air Group, the parent company of Alaska Airlines, also reported better-than-expected earnings in the fourth quarter of 2014. The company delivered earnings of 94 cents per share, outshining the Zacks Consensus Estimate of 91 cents. The carrier reported 8% year-over-year growth in passenger revenues in the quarter, while airline traffic, measured in revenue passenger miles, moved up 9.5% (read more: Alaska Air Group Q4 Earnings Beat, Revs Nearly in Line).
3. Low cost carrier Southwest Airlines outshined the Zacks Consensus Estimate on both lines, aided once again by low fuel costs which fell 14.6% in the quarter to $2.62 per gallon. The company reported earnings of 59 cents a share, surpassing the Zacks Consensus Estimate of 54 cents. Quarterly revenues moved up 4.5% to $4,628 million, ahead of the Zacks Consensus Estimate of $4,590 million.
The favorable fourth quarter results impacted the stock positively. The carrier expects fuel costs (economic) to decline further to $1.90 per gallon, resulting in year-over-year fuel cost savings of $500 million during the first quarter (read more:Southwest Airlines Q4 Earnings, Revs Top Estimates).
4. Weak fuel prices also aided the fourth quarter results of another carrier, American Airlines Group. The company edged past estimates for both revenues and earnings during the final quarter of 2014. Total operating costs in the quarter declined 4.1% to $9.3 billion, owing to a 17.3 % decrease in consolidated fuel cost in the fourth quarter.
The company, which, unlike peers Southwest, United Continental and Delta Air Lines (DAL), has stayed away from hedging its fuel costs, expects to generate savings in excess of $5 billion due to low fuel costs in 2015 (read more: American Airlines Group Tops Q4 Earnings, Revenues).
5. JetBlue Airways announced a last-minute decision to operate an additional flight on Jan 28 from Boston to Phoenix for the Super Bowl. The carrier arrived at the decision following multiple flight cancellations prompted by the winter storm Juno. JetBlue’s decision will enable New England sports fans to reach Phoenix in time for the Big Game instead of getting stranded, thanks to the storm.
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 |
|
HA |
11.43% |
96.47% |
|
UAL |
7.44% |
54.24% |
|
GOL |
-2.42% |
-28.51% |
|
DAL |
1.59% |
28.78% |
|
JBLU |
7.82% |
38.28% |
|
AAL |
0.80% |
30.80% |
|
SAVE |
7.05% |
16.46% |
|
LUV |
14.04% |
57.07% |
|
CPA |
-3.68% |
-29.75% |
|
ALK |
9.28% |
52.58% |
As the chart above suggests, majority of the stocks in the airline space gained over the last 5 trading days. Southwest Airlines emerged as the biggest gainer during the period with its shares rising 14.04% on the back of strong fourth quarter earnings numbers. Meanwhile, Hawaiian Holdings (HA) witnessed the highest upside (96.47%) over the last six months.
What’s Next in the Airline Biz?
Meanwhile, more quarterly numbers are lined up in the near term. JetBlue will release its fourth quarter earnings results on Jan 29, 2015. We expect the carrier to report better-than-expected earnings in the quarter. Apart from carrying a Zacks Rank #1 (Strong Buy), the company also possesses a positive Earnings ESP. 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.
Moreover, we expect JetBlue’s quarterly results to benefit from weak fuel costs, as has been the case with its peers who have already reported their fourth-quarter financials. Hawaiian Holdings is also expected to report better-than-expected earnings for the final quarter of 2014 on the same day.
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