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Airline Stock Roundup: AZUL's Q2 Loss, ALK's Bullish Cash-Burn Update & More

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In the past week, Azul AZUL reported a loss in second-quarter 2020 results. This underperformance was due to weak passenger revenues as a result of deteriorating air-travel demand, which emanated from the coronavirus pandemic. Notably, another Latin American carrier, Copa Holdings, CPA also posted discouraging second-quarter earnings numbers in the previous week.

On the non- earnings front, Alaska Air Group ALK was the primary newsmaker, courtesy of its improved projection for August cash burn compared with July when ticket sales plummeted due to the renewed spike in coronavirus cases in the United States. Meanwhile, European carrier Ryanair Holdings RYAAY trimmed its capacity for both September and October due to the pandemic-induced uncertainty following the rise in infected cases in some European countries.

Recap of the Past Week’s Top Stories

1. Azul incurred a loss of $2.38 per share (excluding $2.33 from non-recurring items) in the second quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $1.11. However, in the year-ago quarter, the company delivered adjusted earnings of 78 cents per share when air-travel demand was strong. Results were affected by the coronavirus-induced drop in demand and a 38% depreciation in the Brazilian Real. Also, total revenues of $74.9 million lagged the Zacks Consensus Estimate of $103.4 million and declined 88.9% year over year as well. Further, passenger revenues, accounting for bulk (70.3%) of the top line, plummeted 88.6% year over year amid low demand due to coronavirus. Revenues from cargo and other sources too decreased 8.5% in the quarter. Consolidated load factor (% of seats filled by passengers) contracted 11.3 percentage points to 72.8% as the fall in traffic (85.2%) was deeper than the capacity contraction (82.9%) in the second quarter.

While total revenues per ASK (RASK) dropped 10.3%, passenger revenues per ASK (PRASK) plunged 33.6%. Moreover, cost per ASK (CASK) surged in excess of 100%, mainly due to capacity cuts. However, fuel price per liter decreased 42% in the June quarter. Also, average fare for the company declined 13.4% from the year-ago quarter’s figure.

Azul exited the second quarter with a passenger operating fleet size of 138 jets. The average age of the fleet is 6 years. Contractual passenger fleet size was 165. The company expects to achieve roughly 60% of the pre-coronavirus capacity levels by December 2020. For the remainder of this year, Azul anticipates a daily cash burn of approximately R$3 million, on average.

Azul currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. Alaska Air anticipates its revenues for August to decline in the 70-75% band on a year-over-year basis due to weak demand for air travel. Revenue passengers for August 2020 are also predicted to plunge between 70% and 75% from August 2019 readings. To combat the bleak demand scenario, Alaska Air is slashing capacity (measured in available seat miles or ASMs). ASMs for August are projected to be down nearly 50% from the year-ago levels. Courtesy of higher ticket sales, cash burn is projected to improve to less than $125 million in the current month from approximately $175 million reported last month.

3. Ryanair will be reducing capacity by 20% for September as well as October due to lower forward bookings of late as coronavirus cases in some European countries show a surge. The cuts will be focused on countries where the spurt in COVID-19 cases resulted in increased travel restrictions by the UK and Ireland. Moreover, the capacity reduction will mostly be felt in the form of decreased flight frequency rather than route closures.

4 United Airlines UAL is planning to add up to 28 daily non-stop flights to Florida this winter as air-travel demand seems to be picking up after months of slowdown. The airline intends to add flights from New York, NY, Boston, MA and Cleveland, OH to the Florida cities of Fort Lauderdale, Fort Myers, Orlando and Tampa, effective Nov 6.

5. Per a CNBC report, American Airlines AAL decided to cancel flights to up to 30 small and medium cities in the wake of the COVID-19 outbreak-led tepid demand for air travel. The plan to shrink services will, however, not materialize before October, 2020. This is because of the fact that per the federal assistance to U.S. carriers under the CARES Act, airlines receiving the aid are required to maintain a minimum level of service and not lay off any employee through Sep 30. Notably, American Airlines is granted $5.8 billion relief package under the scheme.

Performance

The following table shows the price movement of major airline players over the past week and during the past six months. 



The table above shows that all airline stocks have traded in the red over the past week, causing the NYSE ARCA Airline Index to decline 5.2% to $55.34 as coronavirus-related woes relentlessly hurt the industry. Over the course of the past six months, the NYSE ARCA Airline Index has depreciated 50.2%.

What’s Next in the Airline Space?

With the second-quarter 2020 earnings season being over for airlines, investors interested in the space will now await the carriers’ updates on how to combat the coronavirus-induced dismal travel demand.

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Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Copa Holdings, S.A. (CPA) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
AZUL SA (AZUL) : Free Stock Analysis Report
 
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