4 Airline Stocks To Ride On Bullish Q4 Unit Revenue Views
Zacks Investment Research | Jan 15, 2018 03:05AM ET
Stocks in the airline space are flying high lately on the back of improved unit revenue projections provided by the key sector players like JetBlue Airways (NASDAQ:JBLU) , American Airlines Group (NASDAQ:AAL) and United Continental Holdings (NYSE:UAL) .
The bullish projections bode well for the sector with a deluge of fourth-quarter earnings reports, scheduled to be released in the next few days/weeks. We note that Delta Air Lines (NYSE:DAL) had started the fourth-quarter earnings season on a favorable note. The carrier reported Zacks Airline Industry has outperformed the S&P 500 Index in the last three months. While the S&P 500 index gained 9.1%, the industry rallied 10.7%.
Bullish Q4 Unit Revenue Views Bode Well
As we head into the busy part of the earnings season, the impressive fourth-quarter projections for unit revenues, measure of sales relative to capacity for a carrier, boost the overall sentiment around the airlines stocks.
For example, American Airlines now expects total revenue per available seat mile (TRASM) for the fourth quarter to rise in the range of 5-6% year over year. Previous view was an increase in the band of 2.5-4.5%. The improved outlook comes on the back of higher yields across all the geographical regions and better-than-expected domestic close-in bookings.
Additionally, the company anticipates pre-tax margin between 6.5% and 7% for the to-be-reported quarter. Earlier forecast was in the range of 4.5-6.5%. JetBlue Airways expects TRASM to increase approximately 1.8%. Previous view had hinted the metric in the band of -0.5% to +1.5%.
United Continental too provided an improved fourth-quarter outlook with respect to passenger unit revenues (PRASM). The company now expects the metric to be flat year over year (previous guidance had projected the metric in the band of down 2% to flat). Pre-tax margin (adjusted) is anticipated between 6% and 7% (previous guidance had projected the metric in the band of 3% to 5%).
Non-Fuel Unit Costs Likely to Hurt Less in Q4
Apart from bullish unit revenues, the bottom lines of carriers are likely to be less severely impacted by non-fuel unit costs in the fourth quarter. This is evident from the improved outlook provided by the key sector players with respect to cost per available seat miles (excluding fuel).
For example, United Continental non-fuel unit costs (excluding profit sharing) are expected to grow between 1.5% and 2% (previous guidance had projected the metric to grow in the band of 2.5% to 3.5%). Allegiant Travel Company now expects the metric to increase in the band of 5.3% to 5.7% (previous outlook was in the range of 7% to 9%).
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Airlines Should be Present in Your Portfolio
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