Airlines Week In Review: American, United, Southwest, JetBlue Report Operating Results For April

Over the last few days, American (NASDAQ: AAL), United (NYSE: UAL), Southwest (NYSE: LUV), and JetBlue (NASDAQ: JBLU) released their traffic results for the month of April and year-to-date 2015. While Southwest and JetBlue continued to aggressively add capacity, American and United, who had recently lowered their capacity expansion targets for the year, also grew their flying capacity during the month. This pulled down the load factor and unit revenue of all these airlines, except JetBlue, which managed to deliver an increase in its operational efficiency.

American Airlines

Defying its stance of maintaining capacity discipline, American Airlines increased its total capacity (measured by available seat miles) to 22.1 billion in April ^[1], 1.3% higher than its capacity in April 2014. However, the airline was unable to convert this rise in capacity into passenger traffic due to the strengthening of the US dollar. The airline’s passenger traffic dropped 0.3% on a year-on-year basis, as the improvement in domestic traffic was more than offset by the weakness in the Atlantic and Latin American markets. In addition, the Texas-based airline’s load factor (percentage of seats occupied) fell by 1.3% to 81.6% during the month.

American Airlines, the world’s largest airline by traffic, continues to expect its unit revenue (amount collected from each passenger per seat for a mile) to decline approximately 4-6% in the second quarter. Further, the airline has revised its second quarter fuel price estimate to $1.94-$1.99 per gallon, 10% higher than its previous guidance, due to the improving crude oil prices. As a result, the airline expects its pre-tax margin (excluding special items) to be in the range of 17-19%, down from its previous guidance of 18-20%. American had reduced its guidance for total system capacity growth in 2015 from 2-3% to only 2% on a year-on-year basis in the previous quarter. It aims to grow its domestic capacity by 2-3% and international capacity by around 1% during the full year.

– We currently have a price estimate of $54 per share for American, 10% ahead of its current market price.

– We estimate American will post revenue of about $43.8 billion in 2015, compared to its consensus revenue estimate of $43.1 billion.

See our complete analysis of American Airlines here

United Continental

Last month, United had lowered its capacity increase target from 1.5-2.5% to 1-2% for the fiscal year 2015. Despite this, the Chicago-based airline grew its capacity by 2.7% ^[2] during April, driven by substantial capacity expansions in Latin America. While the airline’s passenger traffic rose 0.4% on a year-on-year basis, it was much lower than the capacity increase because the growth in passenger traffic in the Latin American market was offset by the decline in traffic in the Atlantic region. As expected, this resulted in a dip in its operational performance measured by its load factor, which dropped to 81.4% in April versus 83.3% a year ago.

United, the second largest airline in terms of traffic, estimates its average fuel price (including all cash-settled hedges) to be $2.17-$2.22 per gallon during the second quarter. While the airline anticipates its top line growth to dip by 4-6% due to the currency fluctuations and lower fuel surcharges, it forecasts a strong growth in its earnings in the second quarter driven by lower fuel costs and cost reduction measures. The airline estimates its pre-tax margins (excluding special items) to be between 12-14% in the second quarter of the year.

– We currently have a price estimate of $69 for United, 11% ahead of its current market price.

– We estimate United will post revenue of $39.8 billion in 2015, compared to its consensus revenue estimate of $39.2 billion.

See our complete analysis of United here

Southwest

Similar to the last quarter, Southwest continued to grow its flying capacity at a high rate of 6.7% ^[3] in April. Limited exposure to the weak international markets coupled with strong domestic demand helped the low-cost carrier to increase its passenger traffic by 8.6%, higher than the increase in total capacity during the month. This enabled the airline to fly fuller flights. The Dallas-based airline’s load factor improved to 83.1%, 1.4% higher than the load factor recorded in April last year. However, the low-cost carrier’s passenger unit revenue declined by 2% on a year-on-year basis in April due to the exceptional performance in the last year, along with the on-going increase in stage length (length of average flight) and gauge (seats per airplane).

For the full year, the airline plans to grow its capacity about 7% on a year-on-year basis. With these capacity expansions, Southwest expects to increase the number of flights from Dallas Love Field to 180 by August of this year. The airline will continue to control its unit costs and expects to reduce them further by 1-2% during the next quarter.

– We currently have a price estimate of $48 for Southwest, 12% ahead of its current market price.

– We estimate Southwest will post revenue of $19.8 billion in 2015, compared to its consensus revenue estimate of $19.6 billion.

See our complete analysis of Southwest here

JetBlue

Following the footsteps of its low-cost competitor, Southwest, JetBlue continued to grow its capacity aggressively at a rate of 6.6% ^[4] during April, amounting to a year-to-date capacity addition of 8.8%. This boosted the airline’s passenger traffic by 9% during the month compared to last year. Further, the New York-based airline also managed to improve its load factor by 1.8% to 85.7%, which is one of the highest load factor in the industry. Also, the airline’s unit revenue for the month rose by approximately 4% on a year-on-year basis. JetBlue is the only airline that has reported an increase in both the load factor and unit revenue during the month, suggesting that the airline’s operational performance has been improving, despite the rapid capacity expansions.

JetBlue aims to increase its flying capacity between 5.5-7.5% in the second quarter 2015 and between 7-9% for the full year. The airline expects its unit costs (excluding fuel and profit sharing) to increase by 1-3% on a year-on-year basis during the second quarter. The airline has hedged approximately 20% of its second quarter fuel requirements, which will enable it to realize an average fuel price of $2.11 per gallon in the next quarter. For the second half of the year, the airline has hedged approximately 14% of projected fuel consumption.

– We currently have a price estimate of $18 for JetBlue, 17% below its current market price.

– We estimate JetBlue will post revenue of $6.4 billion in 2015, compared to its consensus revenue estimate of $6.3 billion.

See our complete analysis of JetBlue here

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1. American Announces Traffic Results for April, 11th May 2015, www.aa.com [↩]
2. United Announces Traffic Results for April, 8th May 2015, www.unitedcontinentalholdings.com [↩]
3. Southwest Announces Traffic Results for April, 7th May 2015, www.southwest.com [↩]
4. JetBlue Announces Traffic Results for April, 12th May 2015, www.jetblue.com [↩]