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Airline Stock Roundup: SAVE's $2.9 B Deal With ULCC, Q4 Earnings of ALGT & SKYW

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·4 min read
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In the past week, Spirit Airlines SAVE inked a definitive merger agreement with Frontier Group Holdings ULCC, the parent company of Frontier Airlines, to create America’s most competitive ultra low-cost airline. Subject to customary closing conditions, the $2.9-billion ($6.6 billion when the assumption of net debt and operating lease liabilities are considered) deal is expected to close in the second half of 2022.

While news pertaining to the deal between the two discount carriers grabbed headlines, SkyWest SKYW and Allegiant Travel Company ALGT released their fourth-quarter 2021 earnings numbers. Brazilian carrier Gol Linhas GOL was another news maker when it reported its January traffic numbers, which were impressive owing to the improved air-travel demand scenario in the country.

Read the last Airline stock Roundup here.

Recap of the Latest Top Stories

1. Per the terms of the cash and stock deal, Spirit Airlines’ shareholders will receive $25.83 per share, a premium of about 19% on the closing price as of Feb 4. SAVE will own approximately 48.5% of the combined airline, while the remaining will be owned by ULCC. On closure, the deal will result in the formation of the fifth largest airline in the United States. In the event of the merger deal materializing, $1 billion in consumer savings is likely to be generated annually.

The combined entity is expected to generate annual revenues of approximately $5.3 billion (based on 2021 results). Once fully integrated, Frontier and Spirit Airlines, both currently carrying a Zacks Rank #3 (Hold), are expected to deliver annual run-rate operating synergies of $500 million. The board for the combined entity will have12 directors (including the CEO), seven of whom will be named by Frontier and five Spirit. The chairman of the same board will be Mr. Franke, the chairperson of Frontier Airlines.

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

2. SkyWest’s fourth-quarter 2021 earnings were 9 cents per share against the Zacks Consensus Estimate of a loss of 8 cents. In the year-ago quarter, SKYW reported a loss of 93 cents. Revenues of $777.2 million also outperformed the Zacks Consensus Estimate of $720.1 million. The top line jumped 31.8% year over year, courtesy of a 30% increase in block hours (a measure of aircraft utilization) on completed flights. SKYW currently expects its block hours in 2022 to go down 10-15% approximately from its 2021 figures due to the omicron-induced staffing challenges.

3. Allegiant Travel Company reported fourth-quarter 2021 earnings (excluding 59 cents from non-recurring items) of $1.18 per share, beating the Zacks Consensus Estimate of $1.13. Sentiments regarding air-travel demand are bullish now (due to increased inoculation programs) compared with the year-ago quarter’s scenario when the company had reported a loss of $1.12 per share.

Operating revenues of $496.9 million beat the Zacks Consensus Estimate of $475.3 million and increased more than 100% on a year-over-year basis. In the first quarter of 2022, total operating revenues are expected to move up 5-9.5% from first-quarter 2019 actuals.

4. In January, Gol Linhas’ consolidated traffic rose 25.2% year over year. To match the increased demand situation, GOL is expanding its capacity. In the same month, capacity grew 26.2% year over year. GOL carried 27.3% more passengers last month from the year-ago levels.

Upbeat traffic in its domestic markets is leading to the rosy scenario on a consolidated basis. In January, domestic traffic and capacity improved 21.5% and 22.2%, respectively. On the domestic front, 25.6% more passengers boarded GOL’s flights in January 2022.

Performance

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 almost all airline stocks have traded in the green over the past week. However, apart from the double-digit uptick (14.7%) in the Spirit Airlines stock on the merger deal news, the other gains were muted in nature. The NYSE ARCA Airline Index was almost flat over the past week at $82.47. Over the past six months, the NYSE ARCA Airline Index has depreciated 10.2%.

What's Next in the Airline Space?

Fourth-quarter earnings reports from some more carriers are expected in the coming days.


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Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report

Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report

Allegiant Travel Company (ALGT) : Free Stock Analysis Report

SkyWest, Inc. (SKYW) : Free Stock Analysis Report

Frontier Group Holdings, Inc. (ULCC) : Free Stock Analysis Report

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Zacks Investment Research