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Airline Stock Roundup: DAL's Q2 Earnings Miss, AAL's Bullish Q2 Revenue View & More

On Jul 13, Delta Air Lines DAL kick-started the second-quarter 2022 earnings season in the airline space. This Atlanta-based carrier reported lower-than-expected earnings per share due to high fuel costs. American Airlines AAL was also in the news when its management stated that it expects to deliver its first quarterly pre-tax profit for the June quarter since the start of the pandemic. AAL expects its second-quarter total revenues to be up approximately 12% from the second-quarter 2019 level. AAL again recently grabbed headlines owing to a positive labor update, reported in detail in the previous week’s roundup.

Copa Holdings CPA reported a 3.4% decline for the June 2022 traffic from the June 2019 actuals. In the latest update on the acquisition saga of Spirit Airlines SAVE, management delayed its shareholders’ vote on the buyout offer put forward by Frontier Group Holdings ULCC to Jul 27.

Recap of the Latest Top Stories

1.Delta’s second-quarter 2022 earnings (excluding 29 cents from non-recurring items) of $1.44 per share fell short of the Zacks Consensus Estimate of $1.71. Escalated operating expenses induced the earnings miss. Multiple flight cancellations in May and June also hurt results. Delta’s revenues came in at $13,824 million, which not only beat the Zacks Consensus Estimate of $13,608.9 million but also soared 94% from the year-ago quarter’s figure as air-travel demand rebounded from the pandemic lows. Total operating expenses, including special items, escalated 18% to $12,305 million. Aircraft fuel expenses and related taxes surged 41% to $3,223 million in the reported quarter. Fuel gallons consumed contracted 22% to $863 million. Average fuel price per gallon (adjusted) surged 85% to $3.82.

Adjusted operating margin was 11.7%. This was the first quarter where DAL, currently carrying a Zacks Rank #3 (Hold), generated a double-digit operating margin since 2019. DAL remains on track to achieve its 2024 targets of more than $7 in adjusted earnings per share and $4 billion of free cash flow.

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

2. American Airlines expects to earn a pre-tax income of $585 million during the quarter. Pre-tax margin (excluding net special items) is expected to be 5%. AAL expects its second-quarter 2022 total revenues to be up approximately 12% from the second-quarter 2019 figure. Total revenue per available seat miles (TRASM) is expected to be up 22.5% from the second-quarter 2019 actuals (earlier guidance was an increase in the 20-22% range). AAL now expects its second-quarter cost per available seat miles in the June quarter to be up approximately 12% from the second-quarter 2019 level (earlier guidance was an increase in the 10-11% range). Average fuel cost per gallon is likely to be in the $4-4.05 range. Fuel gallons consumed are likely to be $997 million. Detailed second-quarter results will be out on Jul 21.

3. Frontier Group Holdings refused to raise its offer price further for taking over SAVE. This means that ULCC will stick to its last month’s offer, whereby per-share cash consideration payable to Spirit Airlines’ shareholders will be $4.13. This is in addition to 1.9126 Frontier shares that ULCC had agreed to pay previously. ULCC will also prepay $2.22 per share to SAVE’s shareholders as a cash dividend if the transaction is approved. The reverse termination fee is $350 million, payable to Spirit Airlines in case the deal fails to materialize due to antitrust concerns. Per ULCC’s CEO Barry Biffle, SAVE should consider last month's revised merger agreement as its "last, best and final offer."

Biffle also requested SAVE management to defer its shareholders’ vote on the buyout offer put forward by ULCC to Jul 27 from Jul 15. He emphasized the need for more time to gather support. SAVE complied with this request, marking the fourth deferment of the meeting date.

4.  Copa Holdings’ traffic, measured in revenue passenger miles (RPMs), dipped 3.4% to 1.69 billion in June 2022 from the comparable period’s level in 2019. The downside was primarily due to coronavirus-induced lower air-travel demand than the pre-pandemic levels (2019). Due to tepid demand, capacity — measured in available seat miles (ASMs) — fell 1.8% from the 2019 level to 2 billion. With traffic declining more than the extent of capacity contraction, load factor (percentage of seats filled with passengers) deteriorated 140 basis points (bps) to 83.7% in June.


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

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

The table above shows that airline stocks have exhibited a mixed trend with respect to price over the past five trading days. The NYSE ARCA Airline Index increased marginally to $57.03. Over the past six months, the NYSE ARCA Airline Index has plummeted 32%.

What's Next in the Airline Space?

Q2 earnings reports from the likes of American Airlines are scheduled to be out in the coming days.

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
Copa Holdings, S.A. (CPA) : Free Stock Analysis Report
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
Frontier Group Holdings, Inc. (ULCC) : Free Stock Analysis Report
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