Airline Stock Roundup: Copa Holdings Q3 Earnings Top: Southwest Gains On Pilot Deal Ratification

The past week saw Latin American carriers GOL Linhas (NYSE:GOL) and Copa Holdings (NYSE:CPA) reporting their respective earnings numbers for the third quarter of 2016. While GOL Linhas reported in-line earnings, its revenues fell year over year. Copa Holdings topped expectations on both fronts in the quarter.

On the non-earnings front, the biggest news maker was Dallas-based low cost carrier, Southwest Airlines (NYSE:LUV) . Shares of the carrier gained following the favorable vote cast by its pilots to clear a pay-related deal, which will run through Aug 2020. Carriers like Delta Air Lines (NYSE:DAL) , Alaska Air Group (NYSE:ALK) , United Continental Holdings (NYSE:UAL) also revealed their respective October traffic data last week.

On the price front, NYSE ARCA Airline index gained 4.15% in the past week.

(Read the last Airline Stock Roundup for Nov 02, 2016).

Recap of the Past Week’s Most Important Stories

1. Copa Holdings’ third-quarter earnings (on an adjusted basis) of $1.30 per share beat the Zacks Consensus Estimate of $1.28. Earnings were also significantly above the year-ago figure of 85 cents. Quarterly revenues improved 4% on a year-over-year basis to $569 million. Revenues also beat the Zacks Consensus Estimate of $545 million.

The year-over-year increase in the top line was primarily due to a 4.1% improvement in passenger revenues. Operating revenue per available seat mile improved 1.8%, whereas yield per passenger mile decreased 7.6%. Average fuel price per gallon declined 8.6% year over year. Passenger traffic (on a consolidated basis) climbed 12.7% and capacity expanded 2% during the quarter. Load factor climbed 790 basis points (bps) to 84.2% as traffic growth outweighed capacity expansion of this Zacks Rank #1 (Strong Buy) carrier. You can see the complete list of today’s Zacks #1 Rank stocks here.

2. GOL Linhas reported third-quarter 2016 net profit of $91.0 million (approximately R$65.9 million). In the year-ago quarter, the company had incurred a net loss of R$2.1 billion. Also, the company posted breakeven results (or earnings per share of R$0.19) as against an expected loss of 11 cents. (Read more: GOL Linhas Posts Breakeven Results in Q3 Earnings).

3. Pilots at Southwest Airlines approved a four-year contract to bolster their pay. The ratification of the contract will result in an immediate 15% percent pay hike for the more the 8,400 pilots covered under the deal. Moreover, the approval of the deal through Aug 2020, will allow a 3% raise to pilots, each in 2017, 2018, 2019 and 2020. The new contract also includes provisions to boost retirement funding and aims to promote job security. The carrier also maintained its operating revenue per available seat mile guidance for the fourth quarter of 2016 (Read more: Southwest Airlines Pilots Approve Contract, Stock Up).

4. At Delta Air Lines, revenue passenger miles (RPMs) – a measure of air traffic – dipped 0.3% to 17.57 billion in October, while capacity (available seat miles/ASMs) expanded 1.7%. Load factor declined 180 bps to 85.1% in the month as traffic contracted and capacity expanded. The company registered a completion factor of 99.4% with 92.1% of its flights on schedule (Read more: Delta Air Lines' October Traffic and PRASM Decrease).

5. Alaska Air Group reported a 5.5% increase in October traffic. Capacity too increased 3.2%. Load factor climbed 190 bps to 84.2%. At the end of the first ten months of 2016, Alaska Air recorded 9.6% increase in RPMs to 30.5 billion, while ASMs grew 9.9% to 36.2 billion, both on a on a year-over-year basis. Load factor declined 30 bps to 84.2%.

6. At United Continental Holdings, October traffic inched up 0.6% and capacity expanded 1.8%. Load factor decreased 100 bps to 82.4% as traffic expansion was outweighed by capacity growth. The carrier still expects consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenue) in the fourth quarter to decline in the band of 4% to 6%. Fuel price (inclusive of all cash-settled hedges) is projected in the band of $1.56 to $1.61 per gallon.

Performance

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

The table above shows all airline stocks traded in the green over the past week. Shares of GOL Linhas appreciated the most (7.79%). Over the course of six months, the NYSE ARCA Airline index appreciated 17.1%.

What's Next in the Airline Space?

We expect more carriers to report their October traffic numbers in the coming days. Further updates on the proposed takeover of Virgin America (NASDAQ:VA) by Alaska Air Group are also keenly awaited.

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