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Airline Stocks' Q2 Earnings Due on Jul 26: AAL, LUV & More


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The Q2 earnings season is picking up pace with multiple companies reporting earnings each passing day. Per the latest  Earnings Preview , 175 S&P 500 companies are expected to report their quarterly numbers this week.

According to the report, the entire S&P 500 is projected to end the Q2 reporting cycle with bottom-line growth of 21% on a year-over-year basis. The same set of companies is expected to witness top-line growth to the tune of 8.3%.

In fact, of the 16 Zacks sectors, 11 are anticipated to end the current reporting cycle with double-digit earnings growth. One of them is the widely-diversified  Zacks Transportation sector . The top- and bottom line for this sector are anticipated to increase 8.3% and 14.8%, respectively, on a year-over-year basis. These projections compare unfavorably with the readings in Q1 when revenues increased 9% and earnings improved 21.3%.

The reasons behind such unfavorable comparisons are the multiple challenges that the Transportation sector has been facing in the April-June period (Q2 reporting period). Let's delve into the details to unearth these headwinds.

Rising fuel costs has hurt airline stocks, which form an integral part of the Transportation sector, big time. Oil prices have increased roughly 14% in the April-June period. Apart from geopolitical tensions in the Middle East, the economic crisis in Venezuela - a major oil exporter - and OPEC's plans of a lower-than-expected output raise have backed the rally in oil prices . Since expenses on fuel are significant for airlines, an increase in oil prices is unfavorable for the space. In fact, Delta Air Lines, Inc. DAL trimmed its projection on 2018 earnings per share citing high fuel costs.

This apart, expenses on the labor front are likely to limit bottom-line growth for carriers. Also, capacity-related woes might prevent airlines from flying high in the current earnings season. Moreover, airfares have remained low, with the metric declining in April, May and June. Although favorable for passengers, low air fares are a drag for airline companies. For instance, the average fare at JetBlue Airways Corporation JBLU declined 0.7% to $170.08 in Q2. Customer-related issues represent another headwind for airlines.

In view of this bearish sentiment surrounding airline stocks, investors keenly await Q2 reports from key sector participants like American Airlines Group Inc. AAL , Southwest Airlines Co. LUV , Alaska Air Group, Inc. ALK , Spirit Airlines, Inc. SAVE and SkyWest, Inc. SKYW on Jul 26.

According to our quantitative model, a company needs the right combination of two key ingredients - a positive  Earnings ESP  and a Zacks Rank #3 (Hold) or better - to increase its odds of an earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our  Earnings ESP Filter .

American Airlines is headquartered in Fort Worth, TX. Of late, this carrier also experienced a turbulent phase like the other airlines mainly due to increasing fuel costs.

High fuel costs are likely to hurt the company's bottom line in Q2.  Average fuel price per gallon is anticipated to lie between $2.24 and $2.29, much higher than $1.62 in the year-ago period as well as $2.10 in first-quarter 2018.

In fact, the chances of this legacy carrier beating the Zacks Consensus Estimate are less, even though it has a Zacks Rank #3. This is because it has an Earnings ESP of -0.13% (read more: American Airlines Q2 Earnings: Will it Disappoint? ).

American Airlines Group Inc. Price and EPS Surprise

American Airlines Group Inc. Price and EPS Surprise | American Airlines Group Inc. Quote

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

We expect high fuel costs and low bookings due to the unfortunate flight 1380 incident in April to hurt Southwest Airlines ' earnings. In fact, the chances of this low-cost carrier beating the Zacks Consensus Estimate are less, even though it has a Zacks Rank #3. This is because it has an Earnings ESP of -0.51% (read more: Southwest Airlines Q2 Earnings: Will it Disappoint? ).

Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. Price and EPS Surprise | Southwest Airlines Co. Quote

Increased costs are likely to put pressure on Alaska Air Group 's bottom line as well. Notably, the carrier expects second-quarter non-fuel unit costs to rise approximately 3.5% year over year. Also, economic fuel cost per gallon is anticipated to increase nearly 35% to $2.31.

Our proven model too does not conclusively show that Alaska Air Group is likely to beat earnings estimates this quarter, despite its Earnings ESP of +2.35%. This is because the company has a Zacks Rank #5 (Strong Sell), which acts as a spoiler (read more: Will High Costs Mar Alaska Air Group's Q2 Earnings? ). 

Alaska Air Group, Inc. Price and EPS Surprise

Alaska Air Group, Inc. Price and EPS Surprise | Alaska Air Group, Inc. Quote

We expect high costs and soft unit revenues to hurt results at Spirit Airlines . Our proven model too does not conclusively show that this low-cost carrier is likely to beat earnings estimates this quarter, despite its Zacks Rank #3. This is because the company has an Earnings ESP of 0.00% (read more: Spirit Q2 Earnings: What's in the Cards for the Stock? ). 

Spirit Airlines, Inc. Price and EPS Surprise

Spirit Airlines, Inc. Price and EPS Surprise | Spirit Airlines, Inc. Quote

High operating expenses are likely to hurt SkyWest's bottom line. Apart from fleet transition related expenses, other factors like rising fuel costs and incentives to retain pilots are likely to weigh on the company's bottom-line performance. Our proven model too does not conclusively show that SkyWest is likely to beat earnings estimates this quarter, despite its Earnings ESP of +1.02%. This is because the company has a Zacks Rank #4 (Sell), which acts as a spoiler.

SkyWest, Inc. Price and EPS Surprise

SkyWest, Inc. Price and EPS Surprise | SkyWest, Inc. Quote

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

JetBlue Airways Corporation (JBLU): Free Stock Analysis Report

Delta Air Lines, Inc. (DAL): Free Stock Analysis Report

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

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

American Airlines Group Inc. (AAL): Free Stock Analysis Report

Alaska Air Group, Inc. (ALK): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: LUV , JBLU , DAL , SAVE , SKYW



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