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Airlines Lined Up for Q3 Earnings on Oct 24: LUV, AAL & More

Zacks Equity Research

The third-quarter earnings season for the airline industry kicked off with bigwigs Delta Air Lines DAL and United Airlines UAL reporting better-than-expected earnings. Moreover, the bottom line of these carriers improved significantly highlighting cost savings from modest fuel prices. JetBlue Airways (JBLU) too showed an impressive performance, beating on earnings and surging more than 30% year over year, courtesy of low fuel costs.

Here United Airlines’ performance is especially noteworthy given the multiple flight cancellations it had to cope with due to its exposure (the carrier’s fleet consists of 14 Boeing 737 MAX aircraft) to the grounded Boeing 737 MAX jets.

What’s in Store for Other Players?

Solid travel demand and low fuel prices (fuel expenses comprise a major chunk of airline expenditures) are key catalysts for the airlines’ growth prospects.

With air travel demand having remained steady in the third quarter, the carrier’s top line is likely to have benefited from higher passenger revenues, which account for the bulk of the airlines’ top line. Apart from strong demand, improved passenger yields are expected to have boosted unit revenues in the quarter.

Despite numerous flight cancellations from Hurricane Dorian, the carriers weren’t much affected as evidenced by impressive unit revenue projections from Southwest Airlines LUV, American Airlines AAL and Alaska Air Group ALK.

Additionally, with oil prices having declined 8.5% during the July-September period, the airlines’ bottom line is expected to have benefited significantly.

Amid the positives, the carriers with exposure to the Boeing 737 MAX aircraft might have witnessed some softness in earnings from rising non-fuel unit costs due to lower capacity from the groundings. For instance, American Airlines, which canceled 9,475 flights in the July-September period due to the Boeing 737 Max groundings, expects the cancellations to hurt its pre-tax income to the tune of approximately $140 million.

Given this backdrop, investors interested in the airline space will keenly await third-quarter reports from leading players, namely Southwest Airlines, American Airlines, Alaska Air Group and Allegiant Travel Company ALGT on Oct 24.

Our quantitative model suggests that a company needs the right combination of the following two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Southwest Airlines is a passenger carrier providing scheduled air transportation in the United States. The company is likely to beat on earnings in the third-quarter as it has an Earnings ESP of +1.18% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earlier too, our model predicted an earnings beat for the company when we issued our third-quarter earnings preview article. Back then, the stock had an Earnings ESP of +0.31% and the same Zacks Rank.

Southwest Airlines Co. Price and EPS Surprise

American Airlines is a major airline headquartered in Fort Worth, TX. The company with an Earnings ESP of +1.64% and a Zacks Rank of 3 is also likely to surpass on earnings in the third quarter. (Read more: American Airlines to Post Q3 Earnings: A Beat in Store?)

American Airlines Group Inc. Price and EPS Surprise

Alaska Air Group is an airline company offering passenger and cargo services across 100 cities in North America. The stock has an Earnings ESP of +2.58% and a Zacks Rank #2 (Buy), which buoy investors’ hopes on the company’s likely positive earnings surprise this season. (Read more: Will Low Fuel Costs Aid Alaska Air Group's Q3 Earnings?)

Alaska Air Group, Inc. Price and EPS Surprise

Allegiant Travel operates a low-cost passenger airline through its subsidiary Allegiant Air LLC. With an Earnings ESP of +1.39% and a Zacks Rank #3, the company is likely to beat earnings estimates in the third quarter.

Allegiant Travel Company Price and EPS Surprise

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Click to get this free report American Airlines Group Inc. (AAL) : Free Stock Analysis Report Southwest Airlines Co. (LUV) : Free Stock Analysis Report Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report United Airlines Holdings Inc (UAL) : Free Stock Analysis Report Allegiant Travel Company (ALGT) : Free Stock Analysis Report Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report To read this article on click here. Zacks Investment Research