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Airline Outlook Darkens as Warnings Reveal Revenue Weakness

Esha Dey
Airline Outlook Darkens as Warnings Reveal Revenue Weakness

(Bloomberg) -- U.S. airlines should prepare for a turbulent earnings season, after two of the largest carriers sounded profit alarms, citing a slowing domestic market and lackluster growth in the final month of the year.

Now the weak outlooks from American Airlines Group Inc. and Delta Air Lines Inc. have prompted Stephens analyst Jack Atkins to lower his estimates for United Continental Holdings and Southwest Airlines Co., noting the “softer revenue environment.”

“We took our revenue and EPS outlooks up across our airline coverage universe in the second half of December as we believed that airlines would do a better job holding on the fuel savings which accreted to them as oil prices fell sharply in November and December,” Atkins wrote in a note to clients on Friday. “Simply put, the market commentary from Delta and American over the past week showed us that our forecasts were clearly too aggressive,” the analyst added.

The analyst now expects United to report quarterly earnings of $2.02 per share, down from the prior estimate of $2.29, while Southwest is now expected to post an annual profit of $4.90 a share for 2019, compared to the previous view of $5.30. Analysts on average expect earnings of $1.96 a share from United in the fourth quarter, and of $4.84 for Southwest in 2019, according to Bloomberg data.

Atkins also placed his estimates on Spirit Airlines Inc. and JetBlue Airways Corp. under review, while awaiting investor updates from both companies ahead of fourth-quarter results later this month. Delta and United are reporting on Jan. 15, JetBlue and American on Jan. 24 and Spirit on Feb. 6.

In early trading Friday, American Air retreated 2.9 percent, United Continental was off 2.6 percent, Delta by 2.3 percent, Southwest by 2.1 percent, Spirit Air dropped 1.8 percent and JetBlue fell 1.1 percent.

The last year has been turbulent for airline investors, with the sector roiled by capacity expansions that typically weigh on carriers’ pricing power, rapidly fluctuating oil prices and slowing demand for lucrative business travel. The new year may only bring more of the same, especially as the political impasse in Washington and slower economic growth further dampen demand.

(Updates with Friday’s stock moves in 6th paragraph.)

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Scott Schnipper

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