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Airline Stock Q4 Earnings: Key Predictions for LUV, AAL, JBLU

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It is a well-documented fact that the airline industry has been one of the worst-hit by the coronavirus pandemic. With COVID-19 cases spiking again in the United States, the fourth-quarter 2020 results of U.S.-based carriers, which already released their financial numbers, show dismal performances.

Consequently, both Delta Air Lines DAL and United Airlines UAL reported losses for the December quarter, primarily due to the massive decline in passenger revenues. With most aviation stocks yet to report earnings, we fear that their stories are unlikely to be very different from those of Delta and United Airlines.

Against this backdrop, let’s delve deeper to unearth the factors that are likely to have impacted the fourth-quarter performances of Southwest Airlines LUV, American Airlines AAL and JetBlue Airways JBLU. These three carriers are scheduled to report December-quarter results on Jan 28.

Akin to the September quarter, we expect the Dallas-based Southwest Airlines' December-quarter results to reflect disappointing passenger revenues as air-travel demand remains weak. The company expects operating revenues to plunge 65-67% in December. Per the company's CEO Garry Kelly, domestic and international air travel is currently around 33% and 15%, respectively, of the 2019 levels. However, savings from low fuel prices and other cost-cutting measures are supporting the bottom line. Management expects to realize cost savings of more than $400 million for the fourth quarter from voluntary-separation programs aimed at its employees.

Our proven Zacks model too does not conclusively predict an earnings beat for Southwest Airlines this time around. The right combination of the following two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — increases the odds of an earnings beat, which is not the case here as elaborated below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Southwest Airlines currently has a Zacks Rank of 3 and an Earnings ESP of -6.94%, leaving surprise prediction inconclusive. In fact our model had not predicted a positive surprise for the company when we issued its fourth-quarter earnings preview article. Back then, the stock had an Earnings ESP of -9.19% and the same Zacks Rank.

Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. Price and EPS Surprise
Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. price-eps-surprise | Southwest Airlines Co. Quote

American Airlines’ fourth-quarter results are also likely to reflect discouraging passenger revenues, which contribute to bulk of its top line. Due to this bleak demand scenario, the carrier is trimming capacity. Notably, management expects system capacity for the December quarter to nosedive more than 50% year over year. Long-haul international capacity is estimated to be down roughly 75% for the final quarter of 2020. Notably, non-fuel unit costs are likely to have surged in the fourth quarter due to capacity cuts.

However, low fuel costs are likely to have provided some relief in the to-be-reported quarter from the coronavirus-led adversities, aiding the company’s bottom line in the process. Moreover, the proven Zacks model predicts a bottom-line outperformance for American Airlines this time around as this Zacks #3 Ranked carrier also has an Earnings ESP of +2.10%, currently, which lead to a favorable combination.

Meanwhile, our quantitative model had not predicted a beat for the company when we issued its fourth-quarter earnings preview article. Back then, the stock had an Earnings ESP of -0.91% and the same Zacks Rank.

American Airlines Group Inc. Price and EPS Surprise

American Airlines Group Inc. Price and EPS Surprise
American Airlines Group Inc. Price and EPS Surprise

American Airlines Group Inc. price-eps-surprise | American Airlines Group Inc. Quote

Mirroring the above two carriers’ results, tepid travel demand is likely to get reflected on JetBlue Airways’ passenger revenues as well. Due to a spurt in coronavirus cases in the United States, the airline saw slackening demand as well as weak forward bookings. The carrier predicts revenues to tank approximately 70% year over year in the December quarter. It forecasts average daily cash burn between $6 million and $8 million for the period. Previously, the same was expected in the band of $4-$6 million.

However, low fuel prices are expected to have partly offset the negativity and boosted the bottom line in the fourth quarter. In fact, the proven Zacks model predicts a bottom-line outperformance for JetBlue this time around as this #3 Ranked airline also has an Earnings ESP of +1.45%, currently. Earlier too, our Zacks methodology had predicted an earnings beat for the company when we issued its fourth-quarter earnings preview article.

JetBlue Airways Corporation Price and EPS Surprise

JetBlue Airways Corporation Price and EPS Surprise
JetBlue Airways Corporation Price and EPS Surprise

JetBlue Airways Corporation price-eps-surprise | JetBlue Airways Corporation Quote

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report

JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report

Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report

United Airlines Holdings Inc (UAL) : Free Stock Analysis Report

American Airlines Group Inc. (AAL) : Free Stock Analysis Report

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