Airline Stock Roundup: DAL Q3 Earnings Beat, JBLU Revises View
Last week saw Delta Air Lines DAL kick-starting the third-quarter earnings season for the airline space on an impressive note. The company’s earnings as well as revenues surpassed expectations, despite recent natural calamities. While this Atlanta, GA-based company’s top line expanded on a year-over-year basis, the bottom line contracted owing to higher costs.
On the news front, JetBlue Airways Corp. JBLU provided an update pertaining to the expected impact of the devastating hurricanes (Irma and Maria) on its results for the third as well as fourth quarter of 2017. The low-cost carrier unveiled the predictions while revealing its September traffic data.
Southwest Airlines LUV also featured in the news when it put to rest speculations regarding its ambitions to fly to Hawaii. While confirming the rumours, this Dallas-based carrier announced that it intends to sell tickets for its flights to Hawaii next year.
Consequently, hurting shares of the Honolulu County, HI-based Hawaiian Holdings HA. However, the announcement of the initiation of quarterly dividends was a positive for the company.
Transportation - Airline Industry 5YR % Return
Transportation - Airline Industry 5YR % Return
(Read the last Airline Stock Roundup for Oct 11, 2017).
Recap of the Last Week’s Most Important Stories
1. Delta’s third-quarter 2017 earnings (excluding 7 cents from non-recurring items) of $1.57 per share beat the Zacks Consensus Estimate of $1.54. Operating revenues came in at $11,060 million, surpassing the Zacks Consensus Estimate of $11,036.6 million (read more: Delta Air Lines Q3 Earnings Beat, Q4 View Impressive).
2. JetBlue expects its top line to be hurt to the tune of $44 million in the third quarter of 2017. Additionally, operating income is likely to be adversely impacted in the range of $30 million to $35 million. The adverse impact of the hurricanes is not restricted to the third quarter only. The carrier expects the negative impact of the hurricanes on its top line to vary between $70 million and $90 million in the final quarter of 2017 (read more: JetBlue's September Traffic Falls, Hurricanes to Mar Q3 & Q4).
3. The board of directors of Hawaiian Holdings approved an initial quarterly dividend of 12 cents per share. The dividend will be paid on Nov 30 to its shareholders as of Nov 17, 2017. We believe that the dividend initiation not only highlights Hawaiian Holdings’ commitment to create value for shareholders but also underlines the carrier’s healthy financial condition and confidence in its business going forward.
Meanwhile, the company has already been rewarding its shareholders through buybacks. Hawaiian Holdings has returned more than $218 million to investors since 2015.
4. In a bid to expand further, Southwest Airlines announced that it will operate flights to the favorite tourist destination of Hawaii from next year. In order to fulfil its objective, this low-cost carrier intends to shortly commence the process of gaining the necessary approval from the Federal Aviation Administration for operating flights between the mainland and the Hawaiian Islands. In fact, the carrier will release its third-quarter results on Oct 26 and intends to utilize Boeing 737 MAX 8 planes, equipped with all modern facilities, for the new service.
5. Alaska Air Group reported a decline in load factor (percentage of seats filled by passengers) for the month of September. The metric fell to 82.9% from 84.2%, recorded in September 2016 as capacity expansion (10.1%) outpaced traffic growth (8.4%).
At the end of the first nine months of 2017, traffic — measured in revenue passenger miles — improved 6.6% year over year to of 39.07 billion while capacity — measured in available seat miles — expanded 6% to 46.17 billion. Load factor stood at 84.6% compared with 84.2% in the first nine months of 2016.
6. The Bureau of Transportation Services revealed that average airfares in the United States declined 3.1% from the comparable figure a year ago. Also, the price of air tickets decreased 0.1% (unadjusted) in the same month on a month-on-month basis. The decline was owing to higher capacity in air fares.
According to research firm Hopper, air fares (roundtrip) in the United States are likely to decline 1.1% on a month-on-month basis to $208, in October. Domestic capacity is projected to expand 3.4% on a year-over-year basis in the same month.
7. Spirit Airlines SAVE reported a decline in load factor for the month of September. The metric fell 230 basis points to 78.6% as capacity expansion (8.9%) outpaced traffic growth (5.9%).
At the end of the first nine months of 2017, traffic — measured in revenue passenger miles — improved 12.7% year over year to of 18.29 billion while capacity — measured in available seat miles — expanded 15.6% to 21.85 billion. Load factor stood at 83.7% compared with 85.8% in the first nine months of 2016.
The carrier had to cancel 1,650 flights owing to hurricanes Harvey, Irma and Maria in the third quarter of 2017. Spirit Airlines anticipates total revenue per available seat miles (TRASM: a key measure of unit revenue) in the third quarter to decline approximately 6.5% (the previous guidance had called for a decline in the band of 7% and 8.5%).
The brighter view is due improving yields (ticket and non-ticket) and better-than-expected load factor. The low-cost carrier expects its top line to shrink to the tune of approximately $40 million due to the natural calamities and the pilot dispute. Operating margin is expected to be hurt to the tune of approximately 450 basis points. Spirit Airlines now expects third-quarter adjusted cost per available seat miles to be flat to down 1% (the previous guidance had projected the metric to decline between 2% and 3% on a year-over-year basis).
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 | -2.9% | -19.4% |
UAL | 2.6% | -3.1% |
GOL | -6.1% | 47.9% |
DAL | 3.6% | 21.8% |
JBLU | 3.1% | -2.4% |
AAL | -0.5% | 25.9% |
SAVE | -5.1% | -37.4% |
LUV | 0.8% | 8.4% |
CPA | 2% | 12.9% |
ALK | -0.1% | -6.8% |
The table shows that airline stocks exhibited a mixed price performance over the past week leading to the NYSE ARCA Airline Index gaining marginally to $112.12 in the period. Over the course of six months, the NYSE ARCA Airline Index appreciated 1.8% on the back of impressive gains at GOL Linhas GOL. GOL carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What's Next in the Airline Space?
Investors will keenly await earnings reports from United Continental Holdings UAL, Hawaiian Holdings and JetBlue Airways on Oct 18, Oct 19 and Oct 24 respectively over the next few days.
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Southwest Airlines Company (LUV) : Free Stock Analysis Report
JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
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