Airline Weekly Notes: Earnings Fail to Bring Cheer (AMR, DAL, UAL, LCC and JBLU)

The past week, major U.S. airlines including Delta Air Lines (NYSE:DAL), United Continental (NYSE:UAL), US Airways (NYSE:LCC), and JetBlue Airways (NYSE:JBLU) reported their third quarter earnings. Despite facing severe headwinds from soaring fuel costs and macroeconomic uncertainty, all the carriers were able to report a profit as capacity discipline and fare hikes supported revenue gains. The news, however, failed to bring gains to the stocks of these carriers as market had already factored in the resilient demand prior to the earnings release and consensus analyst estimates were even betrayed for some. The week also saw American Airlines (NYSE:AMR) making desperate efforts to return to profitability as it forged new codeshares and progressed on labor negotiations, though the stock finished the week on a flat note.

Company updates below:

American Airlines

The past week, American was able to progress with the labor negotiations as it reached a tentative agreement with the Transport Workers Union (TWU), in principle for the Fleet Service and Ground Service employees. The tentative agreement gives American additional productivity and better aligns its work rules with all other airlines through outsourcing the dayline cabin cleaning and fueling work. American views the agreement as a significant step in its efforts to achieve competitive costs that are critical to its future success. (See American Airlines Press Release, Oct 26)

In other developments, American announced codeshare agreements with Fiji-based Air Pacific and Uruguay’s flag carrier PLUNA.

American Airlines and PLUNA have agreed on a codeshare agreement to place PLUNA’s PU code on American’s nonstop Montevideo-Miami flights as soon as all government approvals are received. (See American Airlines Press Release, Oct 27).

While, the agreement signed with Air Pacific will give American’s customers more travel options throughout the South Pacific and Air Pacific customers easier access to major business centers in the United States. (See American Airlines Press Release, Oct 27)

See our full analysis of American Airlines

Delta Air Lines

Delta fell about 4% last week, as the stock was largely penalized due to lower Q3 earnings than consensus analyst estimates with fuel cost pressures largely eroding revenue gains from fare hikes. Fuel spending at Delta surged 42 percent to $2.88 billion in the third quarter. Earnings excluding some items slid 18 percent to $765 million, or 91 cents a share. That compared with 94-cent average of 13 estimates compiled by Bloomberg. (See Delta Falls After Earnings Miss as Oil Prices Weigh on Airlines, Bloomberg, Oct 26)

The net income was however better than the third quarter of last year. Higher earnings were a result of capacity cuts and the airline raising its fares in an environment of rising fuel cost while its passenger traffic was more or less flat. Delta continued to see higher growth in its international operations, particularly in Latin America, given the demand for business travel. (See Latin America Growth, Partnerships Boost Delta’s Outlook)

See our full analysis of Delta

United Continental

United Continental Holdings reported its third-quarter results last week with a  net income of $773 million or $2 per diluted share, excluding $120 million of net special items consisting primarily of integration-related costs. On a GAAP basis, UAL reported third-quarter 2011 net income of $653 million or $1.69 per diluted share. (See United Continental Press Release, Oct 27)

Profit slumped 23% as surging fuel expenses and more than $100 million in integration costs outweighed the airline’s top-line growth. Fare increases have helped United Continental consistently report industry-leading unit revenue growth and ease the strain of rising fuel costs hindering many carriers. (See United Continental 3Q Net Slumps 23% On Integration Costs, Fuel Expense, Wall Street journal, Oct 27)

See our full analysis of UAL

US Airways

US Airways Group, also reported its third quarter 2011 financial results, late last week. The company reported a net profit excluding special items for the third quarter 2011 of $95 million, or $0.51 per diluted share. This compares with the third quarter 2010 net profit excluding special items of $243 million, or $1.23 per diluted share. A robust demand environment and strong passenger yields led to improved revenue performance. Total revenues in the third quarter were a record $3.4 billion, up 8.1 percent versus the third quarter 2010 on a 1.2 percent decrease in total ASMs. (See US Airways Press Release, Oct 27)

See our full analysis of US Airways

JetBlue Airways

JetBlue Airways reported its results for the third quarter 2011 on Oct 26. Net income for the third quarter was $35 million, or $0.11 per diluted share. Excluding the one-time item, JetBlue reported net income of $38 million, or $0.12 per diluted share. This compares to JetBlue’s third quarter 2010 net income of $59 million, or $0.18 per diluted share. “We are pleased to report another profitable quarter, particularly in light of a $162 million year over year increase in fuel expense,” said Dave Barger, JetBlue’s President and Chief Executive Officer. (See JetBlue Press Release, Oct 26)

See our full analysis of JetBlue

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