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4 Airline Stocks Likely to Outshine Q3 Earnings Estimates

Maharathi Basu

The third-quarter 2019 earnings season is off to an impressive start on the bottom-line front as far as the Zacks Airline industry is concerned. Even though Delta Air Lines DAL and United Airlines UAL reported lower-than-expected revenues, both industry heavyweights surpassed earnings estimates. Results were aided by factors like upbeat passenger revenues due to strong demand for air travel and low fuel costs.

With most airlines yet to report their numbers, through this write-up, we intend to help investors zero in on stocks in the space that are likely to report better-than-expected earnings per share in the ongoing reporting cycle despite high non-fuel costs mainly due to headwinds like the grounding of Boeing 737 MAX jets.

Let’s delve deeper and have a look at the factors that most likely influenced the third-quarter performance of airline stocks.

It is a well-known fact that fuel prices represent a substantial input cost for any airline company. Airlines have been well served in this regard as oil prices declined 8.5% during the July-September period mainly due to the restoration of production capabilities of crude following the drone attack on Saudi Arabia’s oil facilities in mid-September. This drop in oil prices is likely to have supported bottom-line growth in the third quarter of 2019.

Additionally, robust traffic during the summer season may have aided airlines’ third-quarter performance. Upbeat demand for air travel most likely boosted passenger revenues thereby bolstering the top lines of carriers. This is because passenger revenues account for the bulk of top line of most airline companies. Affordable air fares along with a much-improved job market and rising disposable income have provided consumers an added incentive to opt for air travel.

Another factor that may aid third-quarter results for airlines is the fact that the impact of Hurricane Dorian on bookings was not as severe as anticipated initially. Low-cost carrier Spirit Airlines SAVE primarily attributed this reason for its improved third-quarter 2019 total revenue per available seat miles (TRASM: a key measure of unit revenues) projection. (Read more: Spirit Stock Up on Improved Q3 Unit Revenue View).

The strong demand scenario is not only limited to U.S. carriers. As a result of economic improvement in Latin America, strong passenger revenues should bolster third-quarter results of leading carriers in the region like Azul and Gol Linhas Aereas Inteligentes GOL.

Despite the tailwinds, one needs to be mindful of the challenges posed by the prolonged grounding of Boeing 737 MAX jets. The bottom line of carriers with Boeing 737 MAX jets in their fleet is expected to reflect the impact of escalated non-fuel costs due to the grounding of the jets. For example, Southwest Airlines LUV, which has 34 Boeing 737 MAX jets in its fleet, expects non-fuel unit costs to have increased between 8% and 10% in the third quarter. Moreover, flight cancellations due to the groundings are also likely to impact third-quarter results. For example, American Airlines AAL, which canceled 9,475 flights in the July-September period due to the Boeing 737 Max groundings, expects the cancellations to hurt its pretax income to the tune of approximately $140 million.

How to Pick Winners?

The above writeup clearly suggests that despite adversities associated with the 737 MAX groundings there are quite a few positive for airlines that are likely to brighten their earnings picture in the current reporting cycle.

However, given the existence of a number of industry players, finding the right transportation bets with the potential to beat on earnings can be a daunting task. This is where the Zacks methodology proves its mettle.

Our research shows that stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP have maximum chances — as high as 70% — of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our Choices

Based on the above methodology, we have zeroed in on four airline stocks that are likely to surpass the Zacks Consensus Estimate for earnings this season.

Hawaiian Holdings HA, the parent of Hawaiian Airlines, is headquartered in Honolulu County, HI. Hawaiian Holdings has an Earnings ESP of +4.98% and a Zacks Rank #2. The carrier has an impressive earnings surprise history, having outshined the Zacks Consensus Estimate in each of the trailing four quarters.

Low fuel costs are likely to have aided Hawaiian Holdings' third-quarter 2019 performance. Detailed results should be out on Oct 22.

Hawaiian Holdings, Inc. Price and EPS Surprise

 

Hawaiian Holdings, Inc. Price and EPS Surprise

Hawaiian Holdings, Inc. price-eps-surprise | Hawaiian Holdings, Inc. Quote

GOL Linhas Aéreas Inteligentes, headquartered in São Paulo, Brazil, serves more than 33 million passengers per year. GOL Linhas has an Earnings ESP of +1.59% and a Zacks Rank #1. The carrier has outshined the Zacks Consensus Estimate in one of the trailing four quarters. Capacity discipline and high passenger revenues are likely to have aided GOL Linhas’ third-quarter 2019 performance. Detailed results should be out on Oct 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gol Linhas Aereas Inteligentes S.A. Price and EPS Surprise

 

Gol Linhas Aereas Inteligentes S.A. Price and EPS Surprise

Gol Linhas Aereas Inteligentes S.A. price-eps-surprise | Gol Linhas Aereas Inteligentes S.A. Quote

American Airlines, headquartered in Fort Worth, TX, operates more than 6,700 daily flights to over 330 destinations in more than 50 nations across the globe from its hubs. American Airlines has an Earnings ESP of +1.64% and a Zacks Rank #3. The carrier has an impressive earnings surprise history, having outshined the Zacks Consensus Estimate in each of the trailing four quarters.

Impressive passenger revenues due to the strong demand for air travel are likely to have aided American Airlines’ third-quarter 2019 performance. Detailed results should be out on Oct 24.

American Airlines Group Inc. Price and EPS Surprise

 

American Airlines Group Inc. Price and EPS Surprise

American Airlines Group Inc. price-eps-surprise | American Airlines Group Inc. Quote

Southwest Airlines, headquartered in Dallas, TX, is a low-cost carrier. Southwest Airlines has an Earnings ESP of +0.31% and a Zacks Rank #3. The carrier has an impressive earnings surprise history, having outshined the Zacks Consensus Estimate in each of the trailing four quarters.

Impressive passenger revenues are likely to have aided Southwest Airlines’ third-quarter 2019 performance as well. Detailed results should be out on Oct 24.

Southwest Airlines Co. Price and EPS Surprise

 

Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. price-eps-surprise | Southwest Airlines Co. Quote


 

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
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