The strong start to the year for the airline stocks was not
enough to avoid them from suffering a loss in the first half of
2012. The Airlines for America (A4A) reported that the ten major
U.S. carriers recorded a net loss of $1.07 billion in the first
half of 2012. Profit margins deteriorated to a negative 1.5% from
the year-ago level of negative 0.4%.
AMR CORP (AAMRQ): Free Stock Analysis Report
ALLEGIANT TRAVL (ALGT): Free Stock Analysis
ALASKA AIR GRP (ALK): Free Stock Analysis
DELTA AIR LINES (DAL): Free Stock Analysis
HAWAIIAN HLDGS (HA): Free Stock Analysis Report
JETBLUE AIRWAYS (JBLU): Free Stock Analysis
US AIRWAYS GRP (LCC): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis Report
SPIRIT AIRLINES (SAVE): Free Stock Analysis
UNITED CONT HLD (UAL): Free Stock Analysis
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The industry has been struggling with rising fuel costs and
economic uncertainties. Moreover, the deepening European debt
crisis has affected almost all the key global economies. It appears
that the trend will possibly continue this year. Volatility in fuel
price is the major threat to the airline industry and that is
beyond the control of the air carriers.
Revenue for the North American airlines climbed 8.2% year over year
with total expenses rising 9.4% primarily due to a 13.1% hike in
fuel expenses. Fuel cost accounted for roughly 34% of the
industry's costs in the first half.
The ten major North American carriers include
Delta Air Lines
United Continental Holdings Inc
US Airways Group Inc.
Southwest Airlines Co.
JetBlue Airways Corporation
Alaska Air Group Inc.
Spirit Airlines Inc.
Allegiant Travel Company
Hawaiian Holdings Inc.
) and American Airlines, a subsidiary of
). Excluding American Airlines, which has filed for bankruptcy
protection in November last year, the air carriers have earned
profit of $835 million in the first half.
We are already seeing the evidence of the disappointing first half
profits in a pronounced downtrend in earnings estimates for the
U.S. carriers. The current Zacks Consensus estimates of $2.09 and
$2.69 for 2012 and 2013 for Delta are down from $2.20 and $2.93 a
month ago, respectively. Like Delta, earnings expectations for
United have also been trending down from $3.71 and $5.20 over the
last month. Earnings estimates for United are currently pegged at
$2.94 and $4.70 for this year and the next, respectively.
The Zacks Consensus estimates for Southwest have decreased by four
cents (to 75 cents) for 2012 and by seven cents (to $1.02) for 2013
over the past one month. The earnings estimates for JetBlue have
also fallen, with current EPS estimates of 51 cents and 65 cents
for this year and the next, down four cents and three cents,
respectively, over the past one month.
However, the North American airlines are banking on certain factors
to boost their growth prospects as the year progresses. Tight
capacity, rising travel demand and a number of new and enhanced
ancillary revenues are the key catalysts. The carriers are
successfully increasing the ticket prices that would boost
passenger revenue per available seat miles, as they are also
reducing their flying capacities in unprofitable markets. Hence,
passengers have less choice and have to pay more for their
Additionally, efficient use of fuel-hedging strategies would
benefit these carriers to combat rising fuel prices. Apart from
cutting capacity, air carriers are further focusing on fleet
rightsizing. In other words, carriers are replacing their older
fleet, which are no longer feasible in a fuel-expensive
environment, with new fuel-efficient aircraft. Though initially
expensive, this seems the correct strategy to lower non-fuel costs.
These measures would boost revenue growth and reduce non-fuel
costs, thereby driving future profitability.
We currently have a Zacks # 2 (Buy) Rank for Hawaiian Holdings.
Stocks such as Allegiant, Alaska, American Airlines, Delta,
JetBlue, Southwest, Spirit and US Airways currently have a Zacks #3
(Hold) Rank. Nevertheless, we expect United Continental, which has
a Zacks #5 (Strong Sell) Rank, to underperform the broader