July 13, Delta Airlines DAL kicked off the second quarter 2022 earnings season in Airspace. The Atlanta-based carrier reported lower-than-expected earnings per share due to high fuel costs. American airlines AAL also grabbed headlines when its management said it expected to post its first quarterly profit before tax for the June quarter since the pandemic began. AAL expects its second quarter total revenue to be up approximately 12% from the level of the second quarter of 2019. AAL recently made headlines again due to a positive update on work, reported in detail in the overview of the previous week.
Copa Holdings CPA reported a 3.4% decline in June 2022 traffic compared to June 2019 actuals. In the latest update on the acquisition saga of Spirit Airlines SAVE, the management has delayed the vote of its shareholders on the takeover bid proposed by Border Group holdings ULCC as of July 27.
Summary of the latest Top Stories
1. Delta’s second-quarter 2022 earnings (excluding 29 cents from one-time items) of $1.44 per share were below Zacks’ consensus estimate of $1.71. The escalation of operating expenses led to the shortfall. Multiple flight cancellations in May and June also hurt results. Delta’s revenue was $13,824 million, which not only beat Zacks’ consensus estimate of $13,608.9 million, but was also up 94% from the quarter’s figure. the previous year as demand for air travel rebounded from pandemic lows. Total operating expenses, including special items, increased 18% to $12,305 million. Spending on aircraft fuel and related taxes jumped 41% to $3,223 million in the quarter under review. Gallons of fuel consumed contracted 22% to $863 million. Average fuel price per gallon (adjusted) jumped 85% to $3.82.
The adjusted operating margin was 11.7%. This was the first quarter that DAL, currently ranked Zacks Rank #3 (Hold), generated double-digit operating margin since 2019. DAL remains on track to meet its 2024 targets of over $7 in profit. adjusted per share and $4 billion. of free cash flow.
You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
2. American Airlines expects to make a pre-tax profit of $585 million in the quarter. The pre-tax margin (excluding net exceptional items) should be 5%. AAL expects its second quarter 2022 total revenue to be up approximately 12% compared to the second quarter 2019 figure. Total revenue per available seat mile (TRASM) is expected to increase 22.5% from compared to the actual figures for the second quarter of 2019 (previous forecasts indicated an increase in the range of 20 to 22%). AAL now expects its second quarter cost per available seat mile in the June quarter to be approximately 12% higher than the second quarter 2019 level (previous guidance was an increase in order of 10 to 11%). The average fuel cost per gallon will likely be between $4 and $4.05. Gallons of fuel consumed will likely amount to $997 million. Detailed second quarter results will be released on July 21.
3. Frontier Group Holdings declined to further raise the price of its offer to take over SAVE. This means that ULCC will stick to its offer of last month, under which the cash consideration per share payable to Spirit Airlines shareholders will be $4.13. This is in addition to the 1.9126 shares of Frontier that ULCC had previously agreed to pay. ULCC will also prepay $2.22 per share to SAVE shareholders as a cash dividend if the transaction is approved. The reverse termination fee is $350 million, payable to Spirit Airlines in the event the deal does not go through due to antitrust concerns. According to ULCC CEO Barry Biffle, SAVE should view last month’s revised merger agreement as its “last, best and last offer.”
Biffle also asked SAVE management to defer its shareholders’ vote on ULCC’s proposed July 27 takeover bid from July 15. He stressed the need for more time to garner support. SAVE granted this request, marking the fourth postponement of the date of the meeting.
4. Copa Holdings traffic, measured in Revenue Passenger Miles (RPM), fell 3.4% to 1.69 billion in June 2022 from the comparable period level in 2019. The decline was primarily due to the decline in demand for air travel induced by the coronavirus compared to pre-pandemic levels (2019). Due to tepid demand, capacity – measured in available seat miles (ASM) – fell 1.8% from the 2019 level of 2 billion. With the decline in traffic greater than the contraction in capacity, the load factor (percentage of seats occupied by passengers) deteriorated by 140 basis points (bps) to 83.7% in June.
The following table shows the price development of the major airline players over the past week and over the past six months.
Image source: Zacks Investment Research
The chart above shows that airline stocks have exhibited a mixed price trend over the past five trading days. The NYSE ARCA Airline Index rose slightly to $57.03. Over the past six months, the NYSE ARCA Airline Index has fallen 32%.
What’s next in airspace?
American Airlines’ second quarter earnings reports are expected to be released in the coming days.
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Delta Air Lines, Inc. (DAL): Free Inventory Analysis Report
Copa Holdings, SA (CPA): Free Stock Analysis Report
American Airlines Group Inc. (AAL): Free Inventory Analysis Report
Spirit Airlines, Inc. (SAVE): Free Stock Analysis Report
Frontier Group Holdings, Inc. (ULCC): Free Stock Analysis Report
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