For Immediate Release
Chicago, IL - February 16, 2016 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Delta Air Lines ( DAL ), United Continental Holdings ( UAL ), Southwest Airlines ( LUV ), Alaska Air Group ( ALK ) and American Airlines Group ( AAL ).
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Here are highlights from Friday's Analyst Blog:
Are Airlines in Trouble Despite Cheap Oil?
The fourth quarter 2015 earnings season is all but over for stocks in the airline space. The picture that has emerged post the final earnings season of the year is not drastically different from the preceding quarters.
Airline stocks have stumbled on the revenue front yet again, hurt primarily by the strong dollar, as has been the case over the past few quarters. Even though this was more or less expected, what's more alarming is that many leading carriers have missed our estimates even for earnings.
Q4 Earnings Misses Despite Cheap Oil
The final quarter of 2015 saw airline heavyweights like Delta Air Lines ( DAL ) and United Continental Holdings ( UAL ) failing to beat the Zacks Consensus Estimate on the bottom-line front despite oil prices being low. Cheap fuel costs have, however, resulted in significant year-over-year bottom-line expansion for carriers in the fourth quarter of 2015.
One possible reason for this unexpected bottom-line miss is that the oil price weakness has been in place for quite some time now - since mid-2014. The extended period of the slump in oil prices means that analysts must have already accounted for this major tailwind for carriers while setting their earnings estimates. Cheap oil is already priced in.
Moreover, plunging oil prices mean that fuel costs are no longer the largest input cost for carriers. Fourth-quarter results of carriers like Delta, United Continental, Southwest Airlines ( LUV ) and Alaska Air Group ( ALK ) substantiate this view with aircraft fuel expenses ranking second behind salaries, wages and related costs. The rise in labor costs has not helped the bottom line and it has now comfortably displaced fuel costs as airlines' largest expense.
Oil Price Weakness Hits PRASM Also
The continuous drop in oil prices has hurt carriers' top lines as well. For example, United Continental has already stated that the slackening of demand from energy companies at the carrier's Houston hub is due to top soft oil prices resulting in constantly declining passenger unit revenue (PRASM: a measure of unit revenue).
In fact, PRASM-related worries have impacted carriers for quite some time now. Lower fuel surcharges on international flights due to weak oil prices have been one of the reasons behind the constant decline in this key revenue metric, which is a measure of sales relative to capacity for a carrier.
Reservations related to PRASM are likely to persist further in the near term, hurting airline prospects. For example, United Continental expects PRASM to decline in the range of 6% to 8% in the first quarter of 2016. Likewise, American Airlines Group ( AAL ) has projected a 6% to 8% drop in PRASM for the first quarter of 2016.
Zika Fears: The Latest Challenge on the Block
As if pricing, PRASM and capacity related troubles were not enough, the current outbreak of the mosquito-borne Zika virus in multiple countries, particularly in South and Central America, has set off further alarm bells. The spread of the disease has caused many carriers to offer fliers (particularly pregnant women) refunds or options to reschedule their travel to Zika-affected areas at a later date.
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