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Airline Stock Roundup: Azul Misses on Q4 Earnings, AAL Calls Off Venezuela Flights

Zacks Equity Research
SkyWest's (SKYW) fleet transition initiatives aid its first-quarter 2019 results

In the past week, Latin American carrier — Azul AZUL reported lackluster fourth-quarter 2018 results with lower-than-expected earnings per ADS as well as revenues.

On the non-earnings front, the unrest in Venezuela compelled American Airlines AAL to temporarily suspend its operations to the Latin-American nation. Following American Airlines’ pull out, no major U.S.-based carrier will be operating in the troubled nation. Delta Air Lines DAL and United Continental Holdings UAL had stopped operating flights to Venezuela in 2017.

Also, Southwest Airlines LUV inked an Agreement in Principle with the Aircraft Mechanics Fraternal Association (“AMFA”) — the union representing 2,400 mechanics at this low-cost carrier — in the past week. The deal will become effective for five years, if the outcome of the voting procedure is favorable. In that case, the agreement becomes amendable on Aug 16, 2024. 

(Read the last Airline Stock Roundup here).

Recap of the Past Week’s Most Important Stories

1.  Azul’s fourth-quarter 2018 earnings per ADS of 31 cents fell short of the Zacks Consensus Estimate by 18 cents. Moreover, the bottom line plunged on a year-over-year basis. This downturn was due to high fuel costs and devaluation of the Brazilian Real. Notably, fuel price per liter surged 37.2%, while the Brazilian Real depreciated 17.3% year over year. Operating revenues in the reported quarter totaled $651 million (R$2,480.4 million), which missed the Zacks Consensus Estimate of $692 million. The top line also decreased on a year-over-year basis. However, passenger revenues, contributing 94.4% to the top line, rose 13.3% year over year. (Read more: Azul Q4 Earnings & Revenues Miss Estimates, Down Y/Y).

Azul carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. Citing safety concerns, American Airlines’ Allied Pilots Association (“APA”) told its pilots to turn down assignments to Venezuela. The APA’s decision was supported by the carrier’s flight attendants’ union. This move came after the U.S. State Department issued a warning to Americans against traveling to Venezuela due to crime, civil unrest and other factors. The U.S. administration recently suspended daily operations at the U.S. embassy in Caracas and even withdrew all its diplomats from the country. (Read more: American Airlines Halts Venezuelan Operations: Here's Why).

3. After a week of mediation, Southwest Airlines and AMFA reached an agreement in principle. Markedly, both the parties have been involved in negotiations for six years. However, the relationship between them turned sour of late and even hampered Southwest Airlines’ operations. The company had to cancel multiple flights as mechanical issues continued to render them unfit for flying. Consequently, the Dallas-based carrier declared an ‘’operational emergency’’ and also apologized to its passengers for the harassments.

Per the company’s CEO, the flight cancellations/delays resulted in the carrier losing millions of dollars on a weekly basis. Subsequently, the carrier filed a case against AMFA as it believed that the union was aiding the illegal slowdown in operations.

Realizing that the situation might go out of control, the Federal Aviation Administration (“FAA”), in an unusual move, warned the parties that the conflict between them might pose safety-related risks. Mediation followed the FAA’s warning and led to agreement. In the event of the agreement becoming effective, mechanics at Southwest Airlines would get a 20% pay hike (effective Apr 1, 2019) in addition to bonuses worth $160 million.

4. At Alaska Air Group ALK, consolidated traffic for February decreased 2% year over year to 3.7 billion. Also, consolidated capacity contracted 1.9% to 4.7 billion. Consolidated load factor (% of seats filled with passengers) decreased 10 basis points year over year to 79.3%. This key metric declined as capacity decrease was less than the reduction in traffic.

5. In customer-friendly move, Hawaiian Airlines — the wholly-owned subsidiary of Hawaiian Holdings HA — stated that it will operate a third daily flight between San Francisco and the Hawaiian Islands from Oct 16, 2019. Hawaiian Airlines will operate the additional flights on the route by utilizing the new Airbus A321neo planes. The carrier also announced intentions to start operating flights between Honolulu and Boston from Apr 4, 2019. Currently, the carrier operates non-stop flights connecting North America and Hawaii from 12 mainland cities.

 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 6 months

HA

0.5%

-35%

UAL

0.1%

4.2%

GOL

9.4%

21.6%

DAL

-0.1%

-12.4%

JBLU

0.2%

2.7%

AAL

0.4%

7%

SAVE

-1.7%

3.6%

LUV

-0.1%

-19.6%

CPA

-1.1%

4.9%

ALK

2%

-19.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that airline stocks exhibited a mixed trend with respect to price in the past week. Consequently, the NYSE ARCA Airline index remained almost flat in the period. Over the course of six months, the NYSE ARCA Airline index appreciated 4.4%.

What's Next in the Airline Space?

Stay tuned for usual news updates in the space.

 

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
AZUL SA (AZUL) : Free Stock Analysis Report
 
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