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Airline Stocks' Q2 Earnings Due on July 25: LUV, AAL & ALK

Zacks Equity Research

The airline industry got off to an optimistic start in second-quarter 2019 earnings season with Delta Air Lines DAL and United Airlines Holdings UAL posting encouraging earnings numbers earlier in the month.

Both carriers delivered better-than-expected results. Moreover, the top and the bottom line of the companies improved year over year. Strong passenger revenues on the back of upbeat travel demand and lower fuel costs (as fuel expenses comprise a major chunk of airline expenditures) aided the quarterly results.

In fact, banking on solid travel demand, the carriers also provided bullish earnings per share projection for the current year. Delta now expects full-year earnings per share between $6.75 and $7.25 (earlier view: $6-$7 per share). (Read more: Delta Stock Up on Q2 Earnings Beat, Upbeat View)

Meanwhile, United Airlines now envisions 2019 earnings between $10.5 and $12 per share (prior view: $10-$12). (Read more: United Airlines Beats on Q2 Earnings, Tweaks '19 View)

What’s in Store for the Other Players?

Strong air travel demand should lead to higher passenger revenues and in turn, bolster the top line of carriers as passenger revenues account for the majority of airline revenues. Fuel costs have largely remained at modest levels for the most part of the second quarter. This is another boon for the airlines and lower costs from it are expected to drive the bottom line.

The carriers are anticipated to put up an impressive performance on the unit revenue front in the second quarter. Notably, Alaska Air Group ALK estimates total unit revenues to rise approximately 5% year over year in the quarter to be reported. At American Airlines AAL, the same is predicted to increase 3-4% while Southwest Airlines LUV expects operating revenue per available seat mile (RASM: a key measure of unit revenues) to climb 6.5-7.5% year over year in the quarter under review.

However, the carriers with substantial exposure to the Boeing 737 MAX jets are likely to witness some softness in results as the prolonged grounding period caused numerous flight cancellations during the second quarter, thereby affecting margins in turn. For instance, American Airlines anticipates its pre-tax income to be hurt to the tune of roughly $185 million due to cancellation of 7,800 Boeing 737 MAX flights during the period to be reported. Additionally, increase in non-fuel unit costs, primarily due to high labor costs might partly hamper results in the upcoming quarterly release.

Given this backdrop, investors interested in the airline space will keenly await second-quarter earnings reports from leading players, namely Southwest Airlines, American Airlines and Alaska Air Group on Jul 25.

Our quantitative model shows that a company needs the right combination of the following two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Southwest Airlines is a passenger carrier, providing scheduled air transportation in the United States. Although the company carries a Zacks Rank of 3, it is not likely to beat on earnings in the second quarter as it has an Earnings ESP of -0.26%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our model did not predict an earnings beat for the company even when we issued our second-quarter earnings preview. Back then, the stock had the same Zacks Rank but the Earnings ESP was -0.34%.

Southwest Airlines Co. Price and EPS Surprise


Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. price-eps-surprise | Southwest Airlines Co. Quote

American Airlines is a major airline headquartered in Fort Worth, TX. The company is likely to beat on earnings this reporting cycle as it has an Earnings ESP of +0.85% and is a Zacks #3 Ranked player. (Read more: Is a Beat Likely for American Airlines in Q2 Earnings?)


American Airlines Group Inc. Price and EPS Surprise


American Airlines Group Inc. Price and EPS Surprise

American Airlines Group Inc. price-eps-surprise | American Airlines Group Inc. Quote

Alaska Air Group is an airline company offering passenger and cargo services across 100 cities in North America. The stock has an Earnings ESP of +1.02% and a Zacks Rank #2 (Buy), which buoy investors’ hopes on the company’s likely positive surprise this earnings season. (Read more: Can Strong Travel Demand Aid Alaska Air's Q2 Earnings?)

Alaska Air Group, Inc. Price and EPS Surprise


Alaska Air Group, Inc. Price and EPS Surprise

Alaska Air Group, Inc. price-eps-surprise | Alaska Air Group, Inc. Quote

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
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