Airline Stock Roundup: Earnings Beat at UAL, DAL, Labor Deals at LUV
On Jan 13, Delta Air Lines DAL kick-started the fourth-quarter 2022 earnings season for the airline space. This Atlanta-based carrier reported better-than-expected earnings per share and revenues. However, investors were disappointed with the tepid guidance for first-quarter 2023. The downbeat first-quarter 2023 guidance was due to the expectation of high costs.
United Airlines UAL, like Delta, surpassed earnings and revenue estimates for fourth-quarter 2022. Riding on upbeat air-travel demand, UAL expects earnings per share in 2023 to increase massively from 2022 actuals.Southwest Airlines LUV was also a news-maker in the past week, courtesy of the pay-related deals inked with two labor groups. Allegiant Travel Company ALGT reported rosy traffic numbers driven by buoyant air traffic.
Recap of the Latest Top Stories
1 Delta’s fourth-quarter 2022 earnings (excluding 19 cents from non-recurring items) of $1.48 per share beat the Zacks Consensus Estimate of $1.29 per share. DAL reported earnings of 22 cents per share a year ago, dull in comparison to the current scenario, as air-travel demand was not so buoyant then. Delta, currently carrying a Zacks Rank #2 (Buy), reported revenues of $13,435 million, which also surpassed the Zacks Consensus Estimate of $13,030.3 million. Driven by the high air-travel demand, total revenues increased more than 41.87% on a year-over-year basis. Management expects first-quarter 2023 earnings per share in the band of 15-40 cents.
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2. United Airlines reported fourth-quarter 2022 earnings of $2.46 per share, which beat the Zacks Consensus Estimate of $2.07. In the year-ago quarter, UAL had incurred a loss of $1.60 per share when air-travel demand was not as buoyant as in the current scenario. Operating revenues of $12,400 million beat the Zacks Consensus Estimate of $12,230 million. UAL’s revenues increased 51.37% year over year owing to upbeat air-travel demand. The optimistic air-travel demand scenario is also evident from the fact that total operating revenues increased 13.9% from fourth-quarter 2019 (pre-coronavirus) levels. For the first quarter of 2023, United Airlines expects capacity to improve by around 20% from the year-ago reported figure. Revenues for the March quarter are anticipated to grow almost 50% year over year. Total unit revenues are anticipated to grow almost 25% year over year. UAL expects first-quarter earnings per share in the 50 cents-$1.00 band. UAL forecasts the average aircraft fuel price per gallon to be $3.19 in the first quarter. The adjusted pre-tax margin is expected to be roughly 3% in the March quarter.
For 2023, United Airlines expects total unit revenues to remain flat year over year. CASM, excluding fuel, third-party business expenses, profit-sharing and special charges, is expected to remain flat year over year. UAL forecasts the average aircraft fuel price per gallon in the $2.85-$2.90 band for 2023. The adjusted pre-tax margin is expected to be 9%. Adjusted capital expenditures are expected to be around $8.5 billion. Total revenues are anticipated to grow in the high teens versus 2022 actuals. UAL expects 2023 earnings per share in the $10-$12 band.
3. Southwest Airlines’ management announced that while its flight instructors approved a new contract, its facilities maintenance technicians inked a provisional deal. Southwest Airlines has 200 plus flight instructors who provide classroom instruction for flight operations and simulator training to pilots (current as well as newly hired ones). The flight instructors are represented by Transport Workers Union Local 557. They reached a tentative agreement with LUV last month. On being put to a vote, a high majority of the instructors voted in favor of the deal. The other positive labor-related update at LUV came when the union (Aircraft Mechanics Fraternal Association or AMFA), representing its facilities maintenance technicians, reached a tentative pay-related agreement with LUV.
Recently, another carrier, Spirit Airlines SAVE received encouraging tidings on the labor front when the union covering its pilots ratified a pay-related deal. That story was covered in detail in last week’s write-up.
4. At Allegiant Air, the load factor (percentage of seats filled by passengers) for scheduled service increased 5.9 points year over year to 84.7% in December 2022 as the traffic increase was more than the capacity expansion. Moreover, departures improved 2.3% from the December 2021 actuals for scheduled service as well as for total system. In December 2022, Allegiant carried 9.9% more passengers (system-wide) than in December 2021. Capacity (system-wide) increased 2.6% from the year-ago reading. Across the total system, ALGT carried 10.8% more passengers in December 2022 from December 2019 actuals. Departures (system-wide) increased 5.6% from the December 2019 actuals.
5. Pilots at Hawaiian Airlines, the wholly-owned subsidiary of Hawaiian Holdings HA, reached a tentative pay-related four-year deal with the company. HA’s pilots are represented by the union, Air Line Pilots Association (ALPA). The agreement, if ratified, will make the pilots eligible for a 32.9% (on an average) pay hike during the tenure of the deal. This includes an average 16.6% pay hike on the date of signing. Other facilities like signing bonus and retirement facilities are also there. The deal, on materialization, would go a long way in improving pilots’ quality of life. However, the new contract still has a long way to go before it becomes effective. The tentative agreement does not necessarily mean that the deal will be operational. The provisional deal will now be put to a vote. The voting procedure will commence on Jan 27 and last for two weeks. The deal will be effective from Mar 2 if the outcome of the voting procedure is favorable.
The following table shows the price movement of the major airline players over the past week and during the last six months.
Image Source: Zacks Investment Research
The table above shows that almost most airline stocks traded in the red over the past week. The NYSE ARCA Airline Index decreased 1.9% to $62.34 over the past week. Over the course of the past six months, the NYSE ARCA Airline Index has increased 4.2%.
What's Next in the Airline Space?
Fourth-quarter 2022 earnings reports of many key airline players are expected in a week’s time.
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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
Allegiant Travel Company (ALGT) : Free Stock Analysis Report
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