The past week saw Atlanta, GA-based Delta Air Lines DAL kick-start the second-quarter earnings season for the airline space. The carrier reported lower-than-expected earnings and revenues even though quarterly unit revenue improved for the first time since the fourth quarter of 2014. Meanwhile, both earnings and revenues improved on a year-over-year basis.
Chicago-based United Continental Holdings UAL reported better-than-expected results in the quarter. The carrier also reported an increase in passenger unit revenues on a year-over-year basis. However, the third-quarter forecast for the metric disappointed investors. Consequently, the stock declined in after-market trading on Jul 18.
On the non-earnings front, JetBlue Airways Corp. JBLU, Spirit Airlines SAVE and American Airlines Group AAL disclosed their respective traffic numbers for June.
(Read the last Airline Stock Roundup for Jul 12, 2017).
Recap of the Past Week’s Most Important Stories
1. Delta’s second-quarter earnings (excluding special items) of $1.64 per share missed the Zacks Consensus Estimate of $1.66. However, earnings climbed 11.56% on a year-over-year basis on the back of 3.3% operating revenue growth. Meanwhile, quarterly operating revenues of $10.79 billion fell short of the consensus mark. Average fuel price (adjusted) was down 15.7% to $1.66 per gallon (read more: Delta Air Lines Lags Q2 Earnings Despite PRASM Growth).
Delta sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
2. United Continental’s second-quarter 2017 earnings (on an adjusted basis) of $2.75 per share beat the Zacks Consensus Estimate by 3 cents. Moreover, the bottom line improved 5.36% on a year-over-year basis on the back of 6.43% growth in operating revenues. Operating revenues of $10 billion in the second quarter were marginally ahead of the Zacks Consensus Estimate of $9.964 billion.
Consolidated passenger revenue per available seat mile (PRASM or unit revenues) increased 2.1% to 12.78 cents on a year-over-year basis. Yield on a consolidated basis increased 2% from the second quarter of 2016, while passenger revenues rose 6.4% to $8,622 million. Cargo and other revenues increased 22.1% and 3.6%, respectively. Consolidated unit cost or cost per available seat mile (CASM) – excluding fuel, third-party business expenses and profit sharing – increased 3.1% year over year primarily on high labor costs.
United Continental expects consolidated PRASM in the band of -1% to +1% (year over year) for the third quarter. Consolidated capacity, which increased 4.2% in the second quarter, is projected to climb approximately 4% in the third quarter of 2017. The company expects pre-tax margin (adjusted) in the range of 12.5–14.5%. In addition, unit costs (excluding Fuel, Profit Sharing & Third Party business costs) are anticipated to increase in the band of 2% to 3% owing to escalating labor costs.
3. American Airlines expects total revenue per available seat mile (TRASM) for the second quarter (detailed results should be out on Jul 28) to grow in the band of 5–6% (old guidance had hinted at growth in the range of 3.5–5.5%). The raised guidance is primarily based on higher yields. It now expects pre-tax margin, excluding special items, in the range of 13–14% (previous guidance: 12% to 14%).This upbeat guidance was issued by the company while releasing its June traffic data (read more: American Airlines Up on Raised Q2 TRASM Guidance).
4. JetBlue Airways witnessed a significant rise in air traffic for Jun 2017. Traffic – measured in revenue passenger miles (RPMs) – improved 3.2% year over year to 4.07 billion. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) expanded 4% to 4.77 billion. Load factor or percentage of seats filled by passengers decreased 70 basis points (bps) to 85.5% in the month. This was because capacity expansion outweighed traffic growth in the month (read more: JetBlue June Air Traffic Witnesses Significant Rise).
5. Spirit Airlines saw a 17% rise in RPMs to approximately 2.2 billion in Jun 2017 while ASMs increased 19.2% to 2.53 billion. Load factor decreased 160 bps to 86.8%. TRASM for the second quarter is now expected to increase approximately 5.5% (previous guidance had called for an increase in the range of 4% to 5%). Detailed results should be out on Jul 27 (read more: Spirit Airlines June Load Factor Falls, Q2 TRASM View Raised).
6 Copa Holdings, S.A. CPA revealed impressive traffic numbers for the month of June. RPMs improved 14.7% year over year to 1.65 billion. Load factor increased 100 bps to 82.2% as traffic growth outpaced capacity expansion (13.3%).
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 six months |
|
HA |
-2.21% |
-17.83% |
|
UAL |
-4.18% |
6.62% |
|
GOL |
8.17% |
81.94% |
|
DAL |
-3.36% |
7.28% |
|
JBLU |
-0.77% |
8.24% |
|
AAL |
-1.15% |
11.57% |
|
SAVE |
-1.14% |
-7.7% |
|
LUV |
-2.54% |
22.21% |
|
CPA |
2% |
35.33% |
|
ALK |
-2.87% |
-2.35% |
The table above shows that most of the airline stocks traded in the red over the past week. However, losses were muted which kept the NYSE ARCA Airline Index almost flat at $120.32 over the same time frame. Over the course of the six months, the NYSE ARCA Airline Index appreciated 7.4%, driven by huge gains at GOL Linhas and Copa Holdings.
What's Next in the Airline Space?
Investors keenly await earnings reports from Hawaiian Holdings, Inc. HA and JetBlue Airways slated for release on Jul 25.
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