U.S. Markets closed
  • S&P 500

    4,704.54
    +15.87 (+0.34%)
     
  • Dow 30

    35,870.95
    -60.10 (-0.17%)
     
  • Nasdaq

    15,993.71
    +72.14 (+0.45%)
     
  • Russell 2000

    2,363.59
    -13.42 (-0.56%)
     
  • Gold

    1,861.20
    -0.20 (-0.01%)
     
  • Silver

    24.88
    -0.02 (-0.08%)
     
  • EUR/USD

    1.1369
    -0.0006 (-0.0568%)
     
  • 10-Yr Bond

    1.5890
    -0.0150 (-0.94%)
     
  • Vix

    17.59
    +0.48 (+2.81%)
     
  • GBP/USD

    1.3497
    -0.0003 (-0.0216%)
     
  • USD/JPY

    114.3040
    +0.0520 (+0.0455%)
     
  • BTC-USD

    54,743.04
    +525.14 (+0.97%)
     
  • CMC Crypto 200

    1,402.14
    -65.80 (-4.48%)
     
  • FTSE 100

    7,255.96
    -35.24 (-0.48%)
     
  • Nikkei 225

    29,683.09
    +84.43 (+0.29%)
     

Earnings or Oil: What Will Impact the Airlines ETF Ahead?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·11 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

It’s been more than 10 days since Delta Air Lines Inc. DAL kick-started the fourth-quarter earnings season for the airline space. Overall, the season has been mixed-to-upbeat for the industry. The global airlines industry has lately been drawing attention  because of the oil price rally, which will lead to rising fuel costs of the airlines. Attention to earnings is also there as this will help investors gauge how efficiently airlines are emerging from the COVID-led slump.

No doubt, with easing lockdowns, governments of several countries opening vaccinated travel lane programs and the approaching holiday season, air travel demand will rise.

Let’s delve a little deeper.

Inside the Earnings Headlines

Delta Air Lines’ third-quarter 2021 earnings (excluding $1.59 from non-recurring items) of 30 cents per share outpaced the Zacks Consensus Estimate of 15 cents. The company had incurred a loss of $3.30 per share in the year-ago quarter. The good news is that the airline behemoth delivered earnings for the first time in the September quarter of 2021 after suffering six successive quarterly losses due to COVID-induced passenger revenue weakness.

Delta’s revenues came in at $9.154 billion, which not only beat the Zacks Consensus Estimate of $8.371 billion but also soared in excess of 100% from a year ago. Despite an upbeat bottom-line performance, shares of Delta declined post the release of earnings. The downside was mainly due to the commentary on the rising fuel prices by the carrier’s CEO Ed Bastian. Per Bastian, “the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter.” Delta Air Lines forecast a loss again in the final three months of the year, after only its second profitable quarter since the start of the pandemic.

United Airlines UAL incurred a loss (excluding $2.46 from non-recurring items) of $1.02 per share in the third quarter of 2021, narrower than the Zacks Consensus Estimate of a loss of $1.65. The amount of loss has narrowed by 87.5% from the year-ago period. Operating revenues of $7.750 billion surpassed the Zacks Consensus Estimate of $7.640 billion. The top line surged more than 200% year over year with passenger revenues making up 85.6% of the top line, soaring more than 300% to $6.64 billion.

Fuel price is predicted at $2.39 per gallon in the fourth quarter. Anticipating growth in international traffic, the carrier expects to increase 2022 capacity by 5% from the 2019 level.

American Airlines’ AAL third-quarter 2021 loss (excluding $1.24 from non-recurring items) of 99 cents per share compared favorably with the Zacks Consensus Estimate of a loss of $1.04. Quarterly loss per share was also narrower than the year-ago loss of $5.54. Operating revenues of $8.969 billion skyrocketed 182.67% year over year and surpassed the Zacks Consensus Estimate of $8.927 billion. This massive year-over-year jump reflects improving air travel demand. Revenues increased 20% sequentially.

Alaska Air Group’s ALK third-quarter 2021 earnings (excluding 6 cents from non-recurring items) of $1.47 per share surpassed the Zacks Consensus Estimate of $1.29. In the year-ago period, the company had incurred a loss of $3.23. Results reflect the recovery in air-travel demand. Operating revenues of $1.953 billion outperformed the Zacks Consensus Estimate of $1.932 billion. The top line surged more than 100% year over year with passenger revenues, accounting for 90.8% of the top line, soaring over 200%, thanks to the improvement in air travel demand from the pandemic-led lows.

Southwest Airlines Co. LUV incurred a loss (excluding 96 cents from non-recurring items) of 23 cents per share in the third quarter of 2021, narrower than the Zacks Consensus Estimate of a loss of 27 cents. This marks the company’s seventh consecutive quarterly loss as the pandemic continues to dent air travel demand.

Operating revenues of $4.679 billion outperformed the Zacks Consensus Estimate of $4.582 billion and jumped more than 100% year over year. However, the same declined 17% from the third-quarter 2019 reading. Passenger revenues, which accounted for 90.3% of the top line, totaled $4.227 billion, marking an improvement of more than 100% year over year.

JetBlue Airways JBLU incurred a third-quarter 2021 loss (excluding 52 cents from non-recurring items) of 12 cents per share, comparing favorably with the Zacks Consensus Estimate of a loss of 19 cents. Quarterly loss per share was also narrower than the year-ago loss of $1.75. Operating revenues of $1.972 billion skyrocketed 300.8% year over year and also surpassed the Zacks Consensus Estimate of $1.928 billion. Revenues increased 31.5% sequentially. However, compared with the third-quarter 2019 actuals, quarterly revenues declined 5.5%.

U.S. Global Jets ETF JETS in Focus

The $3.53-billion-fund holds about 30 stocks in its portfolio and is concentrated on a few individual securities. All the above-mentioned stocks get a place in the portfolio. UAL, AAL, DAL, LUV, JBLU and ALK hold about 45% of the fund. The product charges 60 bps in fees.

Bottom Line

While the earnings picture is rosy and assuring, rising fuel costs are concerns. The price of jet fuel has doubled to almost $750 per metric ton over the past year, according to data from the International Air Transport Association and Platts, as quoted on Financial Times.

Airlines would definitely try to pass on rising costs to passengers by raising ticket prices but a still-uncertain demand outlook may not enable airlines to use their typical arm to fight rising energy prices. Plus, many airlines abandoned the technique of fuel hedging amid the pandemic due to extremely low oil prices and worsening demand. This has left them more exposed to the fuel crisis now. This shows a feeble hope for recovery in the coming days.

Apart from UAL (which has a Zacks Rank #3 (Hold)), the remaining five airlines currently have a Zacks Rank #4 (Sell). Only if there is a steady improvement in the coronavirus scenario globally will JETS sail through in Q4 by recording volume-driven revenues. Margin pressure is likely ahead. JETS currently has a Zacks Rank #3.

It’s been more than 10 days since Delta Air Lines Inc. DAL kick-started the fourth-quarter earnings season for the airline space. Overall, the season has been mixed-to-upbeat for the industry. The global airlines industry has lately been drawing attention  because of the oil price rally, which will lead to rising fuel costs of the airlines. Attention to earnings is also there as this will help investors gauge how efficiently airlines are emerging from the COVID-led slump.

No doubt, with easing lockdowns, governments of several countries opening vaccinated travel lane programs and the approaching holiday season, air travel demand will rise.

Let’s delve a little deeper.

Inside the Earnings Headlines

Delta Air Lines’ third-quarter 2021 earnings (excluding $1.59 from non-recurring items) of 30 cents per share outpaced the Zacks Consensus Estimate of 15 cents. The company had incurred a loss of $3.30 per share in the year-ago quarter. The good news is that the airline behemoth delivered earnings for the first time in the September quarter of 2021 after suffering six successive quarterly losses due to COVID-induced passenger revenue weakness.

Delta’s revenues came in at $9.154 billion, which not only beat the Zacks Consensus Estimate of $8.371 billion but also soared in excess of 100% from a year ago. Despite an upbeat bottom-line performance, shares of Delta declined post the release of earnings. The downside was mainly due to the commentary on the rising fuel prices by the carrier’s CEO Ed Bastian. Per Bastian, “the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter.” Delta Air Lines forecast a loss again in the final three months of the year, after only its second profitable quarter since the start of the pandemic.

United Airlines UAL incurred a loss (excluding $2.46 from non-recurring items) of $1.02 per share in the third quarter of 2021, narrower than the Zacks Consensus Estimate of a loss of $1.65. The amount of loss has narrowed by 87.5% from the year-ago period. Operating revenues of $7.750 billion surpassed the Zacks Consensus Estimate of $7.640 billion. The top line surged more than 200% year over year with passenger revenues making up 85.6% of the top line, soaring more than 300% to $6.64 billion.

Fuel price is predicted at $2.39 per gallon in the fourth quarter. Anticipating growth in international traffic, the carrier expects to increase 2022 capacity by 5% from the 2019 level.

American Airlines’ AAL third-quarter 2021 loss (excluding $1.24 from non-recurring items) of 99 cents per share compared favorably with the Zacks Consensus Estimate of a loss of $1.04. Quarterly loss per share was also narrower than the year-ago loss of $5.54. Operating revenues of $8.969 billion skyrocketed 182.67% year over year and surpassed the Zacks Consensus Estimate of $8.927 billion. This massive year-over-year jump reflects improving air travel demand. Revenues increased 20% sequentially.

Alaska Air Group’s ALK third-quarter 2021 earnings (excluding 6 cents from non-recurring items) of $1.47 per share surpassed the Zacks Consensus Estimate of $1.29. In the year-ago period, the company had incurred a loss of $3.23. Results reflect the recovery in air-travel demand. Operating revenues of $1.953 billion outperformed the Zacks Consensus Estimate of $1.932 billion. The top line surged more than 100% year over year with passenger revenues, accounting for 90.8% of the top line, soaring over 200%, thanks to the improvement in air travel demand from the pandemic-led lows.

Southwest Airlines Co. LUV incurred a loss (excluding 96 cents from non-recurring items) of 23 cents per share in the third quarter of 2021, narrower than the Zacks Consensus Estimate of a loss of 27 cents. This marks the company’s seventh consecutive quarterly loss as the pandemic continues to dent air travel demand.

Operating revenues of $4.679 billion outperformed the Zacks Consensus Estimate of $4.582 billion and jumped more than 100% year over year. However, the same declined 17% from the third-quarter 2019 reading. Passenger revenues, which accounted for 90.3% of the top line, totaled $4.227 billion, marking an improvement of more than 100% year over year.

U.S. Global Jets ETF JETS in Focus

The $3.53-billion-fund holds about 30 stocks in its portfolio and is concentrated on a few individual securities. All the above-mentioned stocks get a place in the portfolio. UAL, AAL, DAL, LUV, JBLU and ALK hold about 45% of the fund. The product charges 60 bps in fees.

Bottom Line

While the earnings picture is rosy and assuring, rising fuel costs are concerns. The price of jet fuel has doubled to almost $750 per metric ton over the past year, according to data from the International Air Transport Association and Platts, as quoted on Financial Times.

Airlines would definitely try to pass on rising costs to passengers by raising ticket prices but a still-uncertain demand outlook may not enable airlines to use their typical arm to fight rising energy prices. Plus, many airlines abandoned the technique of fuel hedging amid the pandemic due to extremely low oil prices and worsening demand. This has left them more exposed to the fuel crisis now. This shows a feeble hope for recovery in the coming days.

Apart from UAL (which has a Zacks Rank #3 (Hold)), the remaining five airlines currently have a Zacks Rank #4 (Sell). Only if there is a steady improvement in the coronavirus scenario globally will JETS sail through in Q4 by recording volume-driven revenues. Margin pressure is likely ahead. JETS currently has a Zacks Rank #3.


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
 
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
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
U.S. Global Jets ETF (JETS): ETF Research Reports
 
To read this article on Zacks.com click here.