American Airlines Group Inc

Fuel expense is Delta’s largest expense. It accounted for ~29% of the total operating expense in 3Q14. Fuel consumption per available seat mile decreased by 1.5% during the quarter.

The World Bank estimated Ebola’s impact by analyzing two scenarios—low Ebola and high Ebola. The scenarios are based on the probability of the disease spreading internationally.

In this series, we’ll explore the key highlights of the major US airlines’ 4Q15 earnings. In 4Q15, the stocks of most legacy players outpaced those of regional carriers.

On April 17, China (FXI) released several economic data points. The country’s first-quarter GDP growth of 6.4% surprised on the upside.

Delta Air Lines’ (DAL) total traffic fell due to a computer outage. For August 2016, Delta’s traffic fell by 2.8% as compared to the 0.5% capacity growth.

Growing capacity is necessary for revenue growth. However, capacity expansion that exceeds demand growth can lead to declining utilization.

American Airlines (AAL), the fourth-largest US air carrier, is expected to report its first-quarter 2019 results on April 24.

Salary, wages, and benefits increased as a result of higher wage rates. Airlines have also had to increase headcount to adhere to the new Federal Aviation Administration (or FAA) regulations on flight, duty, and rest.

Southwest Airlines’ third-quarter revenues rose 5.1% YoY to $5.6 billion. The company’s EPS grew 22.7% YoY to $1.08.

Alaska Air Group saw the highest surge in traffic demand and was the leader in capacity growth, with a 6.4% YoY increase in its capacity in July 2015.

Out of the total analysts surveyed by Bloomberg, 64.7% of analysts have a “buy” rating on American Airlines, ~35.3% of the analysts have a “hold” rating, and no analysts have a “sell” rating.

Delta’s operating expenses increased by 16%, on 7% higher revenue, to $10,343 million. Higher costs had a negative impact on Delta’s operating profits.

Apart from improved operational efficiencies, American has outperformed its peers in pre-tax margin (excluding special items) improvement in the first half of 2014 to 8.7% from 4.1% in the previous year.

Paulson initiated a new position in CBS Corp. (CBS) last quarter. The position accounts for 1.35% of Paulson’s $20 billion 1Q 2014 portfolio.

Appaloosa Management enhanced its position in American Airlines Group Inc. (AAL) last quarter that now accounts for 3.48% of Appaloosa’s total 1Q portfolio.

2016 has been the worst start for the S&P 500 in the past eight years. US airlines also saw a bad start. The Dow Jones U.S. Airline Index has fallen 4% YTD.

On October 11, Delta Air Lines released its third-quarter results. The company’s adjusted EPS of $1.83 came in ahead of analysts’ expectations by $0.09 and registered a whopping 16.6% YoY (year-over-year) increase.

Chinese airlines have an advantage of having lower employee costs compared to their counterparts in the US. Operational efficiency of US airlines are comparatively higher.

Increases in share prices and dividends provide direct benefits to shareholders. The increases in share prices give better returns. Share repurchases and stock splits provide indirect benefits. Share repurchases lead to a reduction in outstanding shares. This results in increased EPS.

In mid-September 2016, the Hawaiian Airlines pilot union opened a strike operations center to operate in the event of a strike.

Brazil is the third largest domestic aviation market. With double-digit traffic growth, Brazil was one of the fastest-growing domestic markets in 2010 and 2011.

Capital expenditure is generally high in the airline industry. Delta manages to keep it low through its strategy of buying used aircraft.

Today, Delta is one of the largest airlines in U.S. providing transportation services for passengers and cargo—it serves almost 165 million customers each year to 225 domestic and 97 international destinations.

Airlines have been enjoying huge cash surpluses due to cheaper jet fuel, a situation that has persisted since oil prices experienced a massive slide in mid-2014.

For 4Q15, Alaska Air Group’s passenger revenues grew by 4.7% YoY in contrast to the industry’s revenue decline of 1% in 2015. ALK’s total revenue growth stood at 5.5% YoY.

Delta Air Lines (DAL) reported its earnings on October 14, 2015. The earnings call caused greater movement in one of Delta’s key vendors—Boeing (BA).

Airline capacity utilization is measured using the passenger load factor, which is calculated by dividing traffic numbers by capacity numbers.

Analysts recommend “buy” for most airline stocks. Goldman Sachs’ (GS) top picks are American Airlines (AAL) and Spirit Airlines (SAVE), and Credit Suisse’s (CS) favorites are Alaska Air Group (ALK) and Southwest Airlines (LUV).

Analysts expect American Airlines to report an adjusted EPS of $0.51—down 32.4% on a YoY (year-over-year) basis.

Since airlines across the industry have been forecast to beat record profits achieved in 2015, consumers have expected a further fall in airfares.

United achieved significant fuel cost savings during 3Q14 in the form of lower purchase costs and improved fuel efficiency.

According to the IATA, global air freight volume has increased by 4.5%. Capacity, measured by available freight ton kilometers (or AFTK), increased by 3.5% year-over-year in August 2014.

Among its legacy carrier peer group, Alaska Air Group witnessed the most aggressive growth in terms of both traffic and capacity. Airline traffic, as measured by revenue passenger mile, grew by 11.6% YoY in 4Q15.

Appaloosa Management’s top new buy last quarter was American Airlines Group (AAL), with a 2.22% position in the hedge fund’s U.S. long portfolio.

As of December 2013, JetBlue Airways (JBLU) had cash and cash equivalents of $225 million. JetBlue’s cash position has improved by 24% from $182 million in 2012.

After declining slightly and appearing mostly flat for the past three months, American Airlines’ (AAL) capacity grew by 8% year-over-year in February 2016.

In November, the rally in airline stocks was driven by positive remarks on the entire industry from Goldman Sachs (GS) and Credit Suisse (CS).

According to a study by Expedia, airfares fell by about 5% in 2015. Despite this decline, passenger complaints are on the rise. Many consumer leaders also lobbied for airfare reductions.

In November 2016, United Continental Holdings’ (UAL) capacity grew by 1.6% YoY (year-over-year). YTD as of November, capacity grew 1.3%.

Alaska’s capital expenditure (or capex) mainly includes investment on aircraft. It increased since 2010. In 2013, ~80% of the total cash used for investing activities was on capital expenditure. The total capital expenditure was $566 million. $487 million was on aircraft and aircraft purchase deposits. $79 million was on flight equipment and other property and equipment.

On Monday, Bank of America analyst Ronald Epstein lowered his target price on Boeing stock by $10 to $360. However, he maintained his “neutral” rating.

According to a Bloomberg consensus, JetBlue Airways is expected to see earnings per share (or EPS) of $0.6 in the quarter, compared to EPS of $0.58 in 3Q15.

According to Bloomberg’s consensus, out of the 14 analysts tracking American Airlines (AAL), 71.4% have “buy” recommendations.

According to Bloomberg, 12 out of 16 analysts tracking UAL have issued “buy” recommendations. Four analysts have issued “holds.” None has issued a “sell.”

In the last week of June 2017, Qatar Airways’ CEO, Akbar Al Baker, disclosed the carrier’s interest in buying a 10% stake worth $808 million in American Airlines through the open market.

For 2016, analysts are estimating United Continental’s (UAL) revenue to decline by 4% to $36.0 billion. The decline is higher than the earlier estimate of 2%.

In 2015, most airline stocks have fallen, and the NYSE ARCA Airline Index (XAL), which is composed of the major US airline stocks, has also tumbled as much as 13.5% year-to-date.

Load factor measures capacity utilization. It indicates the percentage of total capacity that an airline utilizes. Airlines are capital intensive. They have high fixed costs.

In 2013, almost 57% of United’s (UAL) $37,030 million total operating costs comprised fuel costs (33%) and salaries (23%), compared to Delta’s 46%.

For 2Q16, analysts are estimating 4.2% revenue growth for Alaska Air Group (ALK), which is slower than the 6.2% growth in 1Q16.

US airline stocks tumbled on Tuesday, August 3, following Delta Air Lines’s (DAL) weak operational metrics for July 2016. DAL reported a 7% year-over-year decline in its passenger revenue per available seat mile numbers for July 2016.

Growing trade activity drove the recovery in cargo traffic in emerging markets in Asia, but it was slightly offset by the slowing European economy.

Gol’s financial assets decreased in 3Q14, but its cash balance increased to 1,942 million real from 1,636 million real in FY13.

During the nine months of 2014, American Airlines generated $2,276 million cash from operations.

Appaloosa Management significantly lowered its position in American Airlines (AAL) in the third quarter that ended in September 2014. The position accounts for 3.81% of the fund’s total third-quarter portfolio.

Alaska Airlines (ALK) has the lowest yield of $0.148 among all its peers. Its peers include Delta (DAL) at $0.1689, United (UAL) at $0.1614, American (AAL) at $0.1622, and Southwest (LUV) at $0.1602. Revenue management is essential for the airline industry. The industry needs to maximize revenue by selling the most aircraft seats possible to customers at the best price.

Bond prices fall when interest rate rise. So when interest rate rises, the value of a bond or a bond portfolio falls.

November traffic growth was down compared to 2.7% in October, and growth in capacity picked up from 2% in October.

The Airline Deregulation Act of 1978 removed all regulations governing the airline routes, airfares, entry, and exit of commercial airlines. Earlier, this was controlled by the Civil Aeronautics Board (or CAB). Airfares and all other factors would be determined by demand and supply market forces.

Southwest outperformed all its peers. Its share price increased 2.6% to $33.77 in September. That said, year-to-date results are positive overall.

DE Shaw increased its position in specialty retailer Sears Holdings (SHLD) from 0.01% to 0.07% in 4Q 2013.

Paulson opened a new 2.58% position in Houghton Mifflin Harcourt Company, a global provider of education content and solutions.

Delta’s share price increased after the release of its 3Q14 earnings on October 16, 2014. On October 13, 2014, Delta’s share price reached $30.90—the lowest level since February 2014.

JetBlue’s operating revenue increased by 6% to $1,529 million in 3Q14. The company states that its on-time performance was impacted by congestion in the air space.

American Airlines (AAL) stock rose almost 0.94% on September 12, the day of its traffic release.

Global passenger traffic has increased by 5.8% year-over-year during the first eight months of 2014. Europe (29.7%), Asia-Pacifc (29.2%), and North America (25%) comprise ~85% of global market share by passenger traffic.

For July 2016, JetBlue Airways’ (JBLU) traffic grew by 6.6% YoY (year-over-year), higher than its July 2016 capacity growth of 5.5% YoY.

The airline industry’s fundamentals have improved tremendously in the past two years. This was driven by several factors that include low oil prices, strong passenger travel demand, and strong economic growth.

As of June 30, 11 fallen angel companies had issued tender offers YTD, boosting their bond prices by 5% on average.

Out of the 14 analysts tracking American Airlines (AAL), 50% have a “buy” recommendation on the stock as compared to the 71.4% that had a “buy” rating in 2Q16.

Modernization and development of airports Southwest is  involved in the management of various airport development initiatives. Few of them include Southwest entered into an agreement with Broward Country, Florida in 2013 to manage the Fort Lauderdale Hollywood International airport’s Terminal 1 modernization project. Entered into an agreement with city of Houston to expand the Houston […]

Southwest Airlines (LUV) stock has declined 0.5% since its traffic update on September 12.

In 2013, Alaska operated a fleet of 131 Boeing 737 jet aircraft. It had contracts with Horizon, Sky West Airlines, and Peninsula Airways for regional capacity. Horizon operated 51 Bombardier Q400 turboprop aircraft. It sells all of its capacity to Alaska according to its capacity purchase agreements.

Delta Air Lines (DAL) reported its 2Q16 results on July 14, 2016. The company’s revenue fell by 2.4% YoY (year-over-year) to $10.5 billion.

Magnetar reduced its position in AAL in the third quarter. The position accounts for 1.17% of the fund’s total portfolio in the third quarter.

Alaska Air is expected to announce its 4Q16 financial results on January 26, 2017. What can we expect for 4Q16 and, more importantly, for 2017?

During fatal disease outbreaks, rules and restrictions are imposed—especially on air transportation. This includes canceling flights to the affected areas.

According to IATA (or International Airline Transport Association), for September 2016, global passenger travel demand grew 7% year-over-year (or YoY).

The Boeing Company updated its guidance for 2015. It expects revenues to end in the range of $95 billion–$97 billion by the end of 2015 compared to its previous outlook of $94.5 billion–$96.5 billion.

The demand for air travel experienced considerable growth in the month of August, driven by traditional vacation travel as well as lower fares of major air carriers.

For October, SAVE was ranked third on the metric according to the Department of Transportation. That’s a huge improvement since Spirit has historically been last.

JetBlue is in its growth phase and prefers to utilize its cash receipts to fund business growth and reduce debt levels. JetBlue currently pays no dividends.

Crude oil is trading below $50 per barrel, one of its lowest recent prices, and it is expected to take some time before it recovers, given the huge oversupply.

Delta Air Lines (DAL) stock rose 1.6% on the day of its November traffic release on December 4, 2017, and its peers also saw rises.

At present, 35.3% of the analysts tracking the Southwest Airlines (LUV) stock have “strong buy” ratings, another 35.3% have “buy” ratings, and 29.4% have “hold” ratings on the stock.

You should keep watch on American Airlines’ expected future debt reduction, capacity expansion, and future margins since analysts believe that airline margins have peaked.

The UK market experienced a stock rally on Thursday, September 3, over a comment of the ECB Chief Mario Draghi regarding the ECB’s plan to fully implement its asset-buying program.

The share prices for major airline companies in the U.S. dropped substantially after the news of the first Ebola case in U.S. on September 30, 2014.

China Southern Airlines’ network connects 1,024 destinations in 187 countries, including all major cities in Asia, Europe, the United States, Australia, and Africa.

Traffic growth Delta Air Lines (DAL) saw average traffic of about 59.0 million passenger miles for the quarter, a 0.2% year-over-year decline, despite a growth in capacity. This was driven by weak revenues in all of Delta’s markets except Latin America. As of September 2016, traffic had grown by 1.9% YTD (year-to-date) to 163.2 billion […]

The US airlines’ improved operational efficiency was a driving factor for higher profitability and share price appreciation.

Spirit Airlines (SAVE) reported its February traffic numbers on March 8, 2017. Since then, the stock has gained 0.21%.

Except for one fund (MIGFX), no other actively managed fund that we have reviewed in this series has been able to outperform the passively managed SPY.

Berkshire Hathaway (BRK-B) has announced that it has added more shares of Delta Airlines (DAL) to its portfolio.

On multiple recent occasions, US President Donald Trump has said that the US economy is doing very well.