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Airline Stock Roundup: LTM's Lackluster Q1, LUV's Dividend Hike & More

In the past week, Latin American carrier — LATAM Airlines LTM — delivered lower-than-expected earnings and revenues in first-quarter 2019. Notably, quarterly results were hurt by the devaluation of local currencies, the consequent lackluster international demand and overcapacity in international routes.

On the non-earnings front, Southwest Airlines LUV grabbed headlines owing to the announcement of hike in its quarterly dividend and approval of a new buyback plan.  Additionally, Airlines for America (‘A4A’) — the largest airline trade association in the United States — unveiled a bullish projection for the upcoming summer season (Jun 1-Aug 31). Notably, the association expects it to be the busiest season for U.S. carriers in terms of air travel.

Another key development was the Department of Transportation’s (DOT) decision to grant preliminary approval to American Airlines AAL, Delta Air Lines DAL, Hawaiian Holdings HA — the parent company of Hawaiian Airlines — and United Continental Holdings’ UAL request regarding operation of more flights to Tokyo’s Haneda Airport.

(Read the last Airline Stock Roundup here).

Recap of the Past Week’s Most Important Stories

1. LATAM Airlines reported loss of 10 cents per share which compared unfavorably to the Zacks Consensus Estimate earnings of 10 cents. The company had reported earnings of 15 cents a year ago. Results were hampered by the devaluation of local currencies, the consequent lackluster international demand, and overcapacity in international routes. Total revenues also decreased year over year to $2,431 million, falling short of the Zacks Consensus Estimate of $2,822 million. This downside was due to a 6.5% and 10.9% fall in passenger and cargo revenues respectively.

Operating expenses dipped 0.7% year over year. However, fuel costs increased 4% due to a 8.4% rise in fuel consumption. Excluding fuel costs, cost per available seat mile (CASK) declined 8.7% due to the company’s cost-reduction efforts. Load factor (% of seats filled by passengers) declined 1.1 percentage points to 84.2%. This was because consolidated traffic increase (5.2%) was outweighed by capacity expansion (6.7%).

The company, which expects to end 2019 with an operating fleet of 328, still anticipates current year operating margin between 7% and 9% in the period. Capacity growth (ASKs) is now estimated in the 3-5% range compared with the 4-6% band projected earlier.

2. Southwest Airlines’ board of directors decided to increase its quarterly dividend payout by 12.5% to 18 cents per share (annualized 72 cents per share). The first instalment of the raised dividend will be paid on Jun 26, 2019, to its shareholders of record as on Jun 5. Additionally, the company’s board of directors approved a new share buyback program worth $2 billion. The new program will be operational after the completion of the existing $2-billion share repurchase plan, authorized in May 2018. Currently, $400 million remains under the existing plan. (Read more: Southwest Hikes Dividend, Announces New Buyback Plan).

Southwest Airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3. Per the preliminary approval from DOT, Delta can operate flights to Tokyo's Haneda Airport from Atlanta, Seattle, Detroit, Portland and Honolulu. The Atlanta, GA-based carrier already operates flights connecting Haneda Airport to Los Angeles and Minneapolis-St. Paul. Also, American Airlines has received provisional approval to launch daily flights connecting Haneda Airport and Dallas Fort Worth (DFW) in addition to a second daily flight to Los Angeles International Airport (LAX). Notably, the current flight connecting Haneda Airport and Los Angeles has been operational since 2016. Hawaiian Airlines has been tentatively granted approval to start a new flight connecting Honolulu and Haneda Airport. United Continental was tentatively awarded four slots. However, with only 12 slots available, some routes that were applied for did not get tentative approval.

4. A4A has predicted that the summer of 2019 will be the busiest season of all times for American carriers in terms of air travel. This is because 3.4% more passengers are expected to fly to various destinations over the period compared with the 2018 levels. In fact, this marks the 10th consecutive summer season with year-over-year increase in passengers. Per the forecast, approximately 257.4 million passengers will be transported through U.S. airlines this summer, which sets a record in itself. (Read more: A4A's Bullish Summer Travel Forecast: 3 Stocks in Focus).

5. Copa Holdings CPA posted mixed traffic numbers for April. Load factor (percentage of seats filled by passengers) improved significantly even though traffic declined. This was because traffic decline was less than the capacity contraction in the month. (Read more: Copa Holdings' April Traffic Declines, Load Factor Rises).

Performance

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

 

The table above shows that most airline stocks traded in the red over the past week, leading to the decrease (1.1%) in the NYSE ARCA Airline Index. Over the course of six months, the sector tracker has appreciated 8.7%.

What's Next in the Airline Space?

Stay tuned for usual news updates in the space.

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Southwest Airlines Co. (LUV): Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
 
American Airlines Group Inc. (AAL): Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL): Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA): Free Stock Analysis Report
 
Copa Holdings, S.A. (CPA): Free Stock Analysis Report
 
LATAM Airlines Group S.A. (LTM): Free Stock Analysis Report
 
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