U.S. Markets closed

Airline Stock Roundup: Q1 Earnings at American Airlines, Southwest; Delta's Traffic in Focus

Zacks Equity Research

The past week saw airline heavyweights like Southwest Airlines LUV, American Airlines Group AAL and Alaska Air Group ALK reporting first-quarter 2017 respective earnings numbers. The common trend in the quarterly reports of all these companies was the year-over-year decline in earnings due to higher costs.

While expenses on the labor front surged due to the various labor deals inked by carriers, fuel costs too increased and resulted in bottom-line contraction. In fact, American Airlines’ outperformance in Q1 was overshadowed by the proposal to hike wages for its pilots and flight attendants. The issue resulted in not only American Airlines’ stock declining but also those of its peers.

On the non-earnings front, Delta Air Lines’ DAL April traffic report grabbed headlines. Additionally, many top airline executives were reportedly grilled by members of the House Transportation Committee regarding their mode of operations. United Continental Holdings’ UAL CEO, Oscar Munoz once again apologized for the passenger dragging incident at the hearing.

Transportation - Airline Industry 5YR % Return

 

Transportation - Airline Industry 5YR % Return

(Read the last Airline Stock Roundup for Apr 26, 2017).

Recap of the Past Week’s Most Important Stories

1. American Airlines’ first-quarter 2017 earnings (adjusted) of 61 cents per share beat the Zacks Consensus Estimate by 4 cents. Revenues of $9,624 million were 2% above the year-ago figure. Quarterly revenues edged past the Zacks Consensus Estimate of $9,621.3 million (Read more: American Airlines Q1 Earnings Top Estimates, Down Y/Y).

Despite the outperformance, shares of American Airlines declined due to the mid-contract wage hike announced by the company for its pilots and flight attendants. In a bid to match the industry-leading levels, the carrier offered its pilots and flights attendants a pay rise of around 8% and 5%, respectively (Read more: American Airlines Pay Raise: Will It Hurt the Industry?).

2. Southwest Airlines reported lower-than-expected earnings and revenues in the first quarter. The carrier’s earnings per share (on an adjusted basis) of 61 cents missed the Zacks Consensus Estimate of 62 cents. Earnings also declined 30.68% year over year (Read more: Southwest Airlines Stock Down on Q1 Earnings Miss).

3. Alaska Air Group, which acquired Virgin America in December last year, reported mixed results in the first quarter. The carrier’s earnings of $1.05 per share beat the Zacks Consensus Estimate by a penny. Revenues of $1,749 million fell short of the Zacks Consensus Estimate of $1,782.7 million. (Read more: Alaska Air Group Beats on Q1 Earnings, Misses Sales).

4. Spirit Airlines’ SAVE first-quarter earnings (on an adjusted basis) came in at 51 cents per share, beating the Zacks Consensus Estimate of 49 cents. Earnings declined 49.5% on a year-over-year basis due to higher costs. Spirit Airlines’ operating revenues of $591.7 million fell short of the Zacks Consensus Estimate of $591.9 million. A 12.9% increase in flight volume contributed to the top line expanding 10% on a year-over-year basis.

In the reported quarter, operating revenue per available seat mile fell 4.2% year over year, while load factor (percentage of seats filled by passengers) decreased to 81.6% from 84.7% in the year-ago quarter. Load factor decreased as traffic growth (10.7%) was outpaced by capacity expansion (14.9%) during the first quarter of 2017.

Cost per available seat mile, excluding special items and fuel, increased 0.5%. The metric is expected to increase in the band of 3.5–4.5% in the second quarter. Fuel costs increased substantially during the reported quarter.

5. Delta unveiled impressive traffic data for Apr 2017. Consolidated traffic – measured in revenue passenger miles (RPMs) – came in at 17.6 billion, up 1.6% year over year. While domestic RPMs climbed 0.2%, international RPMs increased 3.8%. Load factor, or the percentage of seats filled by passengers, increased to 85.3% from 83.3% recorded a year ago. This is because consolidated capacity contracted (0.8%) while traffic grew, leading to packed planes for the month.

Consolidated passenger revenues per unit seat miles (PRASM: a key measure of unit revenues) inched up 1% year over year in April despite storms in Atlanta during the month that forced the carrier to cancel multiple flights. Naturally, the traffic report impacted the stock positively.

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

Performance

The following table shows the price movement of the major airline players over the past week and during the last 6 months. 

Company

Past Week

Last 6 months

HA

2.53%

25.2%

UAL

4%

32.2%

GOL

7.63%

-23.22%

DAL

-1.81%

14.1%

JBLU

-2.31%

30.3%

AAL

-6%

11.4%

SAVE

3.1%

26.7%

LUV

1.7%

46.93%

CPA

2.2%

31.1%

ALK

-5.15%

24.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The table above shows that the majority of the airline stocks traded in the green over the past week, although the gains were subdued in nature. The NYSE ARCA Airline Index inched up 0.31% to $114.4 over the past week. Over the course of six months, the NYSE ARCA Airline Index appreciated 21.34%. Shares of Southwest Airlines appreciated the most (46.93%) during the period.

What's Next in the Airline Space?

We expect April traffic data from the likes of Hawaiian Holdings HA in the coming days.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research. It's not the one you think.

See This Ticker Free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Southwest Airlines Company (LUV): 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
 
American Airlines Group, Inc. (AAL): Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research