Markets
LUV

Airline Stock Roundup: Q4 Earnings at American Airlines, JetBlue; Trump's Travel Ban Policy & More

The fourth-quarter 2016 earnings season is in full swing and several companies from the airline sector have already announced their quarterly results. While Southwest Airlines LUV delivered better-than-expected earnings, American Airlines Group AAL posted in-line results. Both companies outperformed on the top-line front. JetBlue Airways' JBLU revenues met estimates, while earnings topped our expectations.

Increase in labor costs, thanks to the new labor deals inked by carriers, limited bottom-line growth. Nonetheless, unit revenues continue to improve. In fact, total revenue per available seat miles (TRASM: a key measure of unit revenue) improved 1.3% to 14.9 cents in the fourth quarter at American Airlines. This was the first quarter since the fourth quarter of 2014 that the carrier has registered year-over-year growth in the metric.

On the non-earnings front, shares of U.S. carriers plummeted as President Trump issued a ban on travelers from seven predominantly Muslim nations - Iraq, Iran, Syria, Yemen, Sudan, Somalia and Libya - from entering the nation.

Transportation - Airline Industry 5YR % Return

Transportation - Airline Industry 5YR % Return

(Read the last Airline Stock Roundup for Jan 25, 2017 ).

Recap of the Past Week's Most Important Stories

1. American Airlines' fourth-quarter 2016 earnings (adjusted) of $0.92 per share were in line with the Zacks Consensus Estimate. Quarterly earnings decreased significantly on a year-over-year basis. Higher costs hurt the bottom line. Revenues of $9,789 million were 1.7% above the year-ago figure and also edged past the Zacks Consensus Estimate of $9,765.5 million.

Total operating expenses climbed 5.4% year over year to $9 billion, primarily due to an increase in labor costs. Expenses pertaining to salaries and benefits surged 17.4%. Consolidated operating costs per Available Seat Mile (CASM: excluding special items) increased 7.6%.

The company expects TRASM for the first quarter of 2017 to grow in the band of 2.5-4.5% year over year. American Airlines expects pre-tax margin in the first quarter of 2017, excluding special items, to be approximately 3-5%. Consolidated CASM (excluding fuel and special items) is projected to increase 9% in the first quarter. The metric is expected to increase around 4% in 2017. Capacity (system) in 2017 is projected to inch up 1% in 2017.

2. Southwest Airlines reported impressive results in the fourth quarter. The company beat earnings estimates and delivered better-than-expected revenues. Southwest Airlines currently sports a Zacks Rank # 2 (Buy).You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Southwest Airlines' earnings per share (on an adjusted basis) of 74 cents beat the Zacks Consensus Estimate of 69 cents (Read more: Southwest Airlines Stock Up as Q4 Earnings Outshine ).

3. Low-cost carrier JetBlue Airways Corporation's fourth-quarter earnings (excluding special items) of 50 cents per share beat the Zacks Consensus Estimate by a penny. Earnings declined substantially from the year-ago figure due to higher costs (Read more: JetBlue Airways Declines Despite Q4 Earnings Beat ).

4. The immigration ban spelled challenges for airlines stocks as the travel demand is likely to decline. Moreover, in the short-term, costs might escalate due to the obligation to refund tickets. It goes without saying that the executive order, aimed at preventing terrorism in the U.S., was not greeted warmly. In fact, several U.S. airports were rife with protests over the weekend. (Read more: US Airlines Nosedive on Trump's Travel Ban Policy ).

5. Technical glitches are the latest problems for carriers. In the last one year, some of the biggest airlines were adversely impacted by technological issues. Delta Air Lines DAL was the latest victim of disruption in operations due to technological failure. The Atlanta, GA-based carrier suffered a computer outage on Jan 29, leading to the cancellation of multiple flights. The issue, however, has been resolved. Given that technological infrastructure is a key expense for airlines, the profitability of carriers could be affected in the event of such malfunctions.

6. Allegiant Travel Company's ALGT fourth-quarter 2016 earnings per share of $2.48 beat the Zacks Consensus Estimate by 8 cents. Quarterly revenues increased 8% year over year to $336 million and also surpassed the Zacks Consensus Estimate of $334 million. Network growth boosted results. Air traffic rose 10.9% year over year and capacity grew 13.3%. Load factor was 79.8%, down 170 basis points as capacity expansion outweighed travel growth.

For the first quarter of 2017, the company expects cost per available seat mile (CASM), excluding fuel, to grow in the range of 10-12%. The company expects the upside to be primarily driven by the implementation of the new pilot agreement. Total revenue per available seat mile (TRASM) in the first quarter is likely to decline in the band of 1.5-3.5%.

Performance

The following table shows the price movement of the major airline players over the past week and during the last 6 months.

Company Past Week Last 6 months
HA -7.95% 11.29%
UAL -3.67% 48.80%
GOL 5.09% 20.33%
DAL -5.03% 19.66%
JBLU -10.42% 7.75%
AAL -7.59% 24.30%
SAVE -3.60% 29.94%
LUV 6.94% 41.23%
CPA 0.04% 44.17%
ALK 0.43% 38.68%

The table above shows most of the airline stocks traded in the red over the past week resulting in the NYSE ARCA Airline index declining 2.96% $108.38 over the period. Over the course of six months, the NYSE ARCA Airline index appreciated 23.12%.

What's Next in the Airline Space?

The coming week will see the likes of Spirit Airlines SAVE and SkyWest, Inc. SKYW revealing fourth quarter results. Focus will also be on the January traffic reports from the likes of Delta.

Zacks' Best Investment Ideas for Long-Term Profit

Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>

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

Southwest Airlines Company (LUV): Free Stock Analysis Report

JetBlue Airways Corporation (JBLU): Free Stock Analysis Report

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

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

Allegiant Travel Company (ALGT): Free Stock Analysis Report

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

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

To read this article on Zacks.com click here.

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.


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

In This Story

LUV ALGT JBLU SKYW DAL

Other Topics

Earnings Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More