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MarketWatch First Take: Airlines enter earnings season wrestling with fuel prices, hiring challenges


The earnings season for the U.S. airline industry is about to start. So what can we expect?

Cowen analyst Helane Becker says that the airline industry is still wrestling with issues that have plagued it all year. These include volatile jet fuel prices, supply chain issues causing delays in maintenance and repair, aircraft delivery delays and difficulty hiring and retaining employees, particularly pilots. “Non-network airlines are seeing defections to American, Delta, and United as they aggressively hire both for growth and to replace retiring pilots,” she wrote, in a note released on Friday.

“We will also be looking for companies to talk about their plans to rein in costs,” Becker added. “We are well aware salaries are going up through hourly pay increases and bonuses, and once that genie is out of the bottle, it’s hard to put it back in.”

The analyst thinks we could see positive surprises from Delta Airlines Inc.
American Airlines Group Inc.
United Airlines Holdings Inc.
JetBlue Airways Corp.
Spirit Airlines Inc.
Copa Holdings S.A.
AerCap Holdings N.V.

and Atlas Air Worldwide Holdings
but negative surprises from the likes of Alaska Air Group Inc.
Hawaiian Holdings Inc.
Allegiant Travel Co.
Frontier Group Holdings Inc.
Skywest Inc.

and Southwest Airlines Co.

Delta kicks off airline earnings when it reports third-quarter results before market open on Oct. 13. Analysts surveyed by FactSet are looking for earnings of $1.54 a share, or $1.55 a share excluding items, on net income of $998 million. Sales are expected to be $12.898 billion, according to analysts.

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“DAL (and many other airlines) have sharply underperformed broader transports since the end of 2019,” wrote Evercore ISI analyst Duane Pfennigwerth, in a note. “During a stimulus juiced lockdown, when travel was shut-down and spending options were very limited, this made perfect sense.”

But, with travel restrictions lifted, airlines should be performing better, according to the analyst. “In a reopened world, it is far less clear why moving people (who aspire to see the world) vs. moving boxes should maintain such an underperformance gap (consensus recession fears notwithstanding),” he wrote.

Pfennigwerth also believes preliminary buyside estimates of revenue per available seat mile are too high into the fourth-quarter, given the shape of capacity.

Set against this backdrop, the analyst firm revised its Delta Airlines 2023 earnings per share estimate to $4.55 from $5.50 and established a 2024 earnings per share estimate of $6.25.

United Airlines reports its third-quarter results after market close on Oct. 18, with a conference call the next day. In July United delivered its first profitable quarter since the start of the pandemic, despite fuel prices hitting record highs.

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Last month United Airlines raised its third-quarter revenue growth outlook, citing “strong” demand at the end of a “robust” summer. United “is likely the best positioned airline to take advantage of the next stage of the revenue recovery, which will come from large corporates and international travel continuing to move closer to 100% recovered,” wrote Jefferies analyst Sheila Kahyaoglu, in a note last month.

Analysts surveyed by FactSet are looking for earnings of $2.22 a share, or $2.23 a share excluding items, on net income of $745 million. Sales are expected to be $12.718 billion.

American Airlines will report its third-quarter results on Oct. 20.  Demand data for American and United “meaningfully diminishes” the risk of a downside 4Q guidance surprise heading into earnings, according to JPMorgan analyst Jamie Baker, in a note released Friday. “American & United fourth quarter booked revenue – through the end of September and disclosed Thursday – continues to exceed that of 2019 by a wide margin, continuing the trend established earlier this year,” he wrote. “While the stocks continue to signal a meaningful deceleration in demand, in our view, the data has yet to support that outcome.”

The company’s shares have fallen 33.2% this year, outpacing the S&P 500 index’s

decline of 23.5%.  Analysts surveyed by FactSet are looking for earnings of 34 cents a share, or 45 cents excluding items, on net income of $326 million. Sales are expected to be $13.306 billion.

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