Airlines Earnings Mixed: What Lies ahead of ETF? – August 12, 2022

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It’s been more than three weeks since Delta Air Lines Inc. (DAL Free Report) kick started the second-quarter earnings season for the airline space. Overall, the season has been mixed for the industry. The sector still has to traverse a long way before it can reach the pre-pandemic level.

However, the pureplay airlines ETF U.S. Global Jets ETF (JETS Free Report) has gained 8.4% past month (as of Aug 3, 2022). In fact, the fund beat the S&P 500 (up 8.6%) in the past one-month period.

This makes JETS a great bet for vaccine rollout and economic optimism. Still, we need to pay attention to the earnings picture of the industry. Let’s delve a little deeper.

Inside the Headlines

Delta Air Lines’ (DAL Free Report) second-quarter 2022 earnings (excluding 29 cents from non-recurring items) of $1.44 per share fell short of the Zacks Consensus Estimate of $1.71. Escalated operating expenses induced the earnings miss.

Delta’s revenues came in at $13,824 million, which not only beat the Zacks Consensus Estimate of $13,608.9 million but also soared 94% from the year-ago quarter’s figure as air-travel demand rebounded from the pandemic lows.The uptick in air-travel demand in the United States can be gauged from the fact that 75.9% of second-quarter 2022 passenger revenues came from the domestic markets.        

United Airlines’ (UAL Free Report) second-quarter 2022 earnings (excluding 43 cents from non-recurring items) of $1.43 per share fell short of the Zacks Consensus Estimate of $1.86. Operating revenues of $12,112 million marginally beat the Zacks Consensus Estimate of $12,033.7 million. Revenues increased more than 100% year over year owing to upbeat air-travel demand. The optimistic air-travel demand scenario is also evident from the fact that total operating revenues increased 6.2% from second-quarter 2019 (pre-coronavirus) levels.

American Airlines’ (AAL Free Report) second-quarter 2022 earnings (excluding 8 cents from non-recurring items) of 76 cents per share fell short of the Zacks Consensus Estimate of 79 cents. Escalated operating expenses induced the earnings miss. Operating revenues of $13,422 million skyrocketed 79.5% year over year and also surpassed the Zacks Consensus Estimate of $13,409.8 million. This massive year-over-year jump reflects upbeat air-travel demand. Buoyant air-travel demand is also reflected by the fact that total operating revenues increased 12.2% from the second-quarter 2019 (pre-coronavirus) levels despite operating at an 8.5% lower capacity.

Low-cost carrier Southwest Airlines Co. (LUV Free Report) reported better-than-expected second-quarter 2022 results, wherein both earnings and revenues outperformed the Zacks Consensus Estimate. Quarterly earnings of $1.30 outpaced the Zacks Consensus Estimate of $1.17. Moreover, the bottom line improved by more than 100% year over year. Operating revenues of $6,728 million outperformed the Zacks Consensus Estimate of $6,719.1 million and jumped 67.9% year over year..

JetBlue Airways (JBLU Free Report) incurred a second-quarter 2021 loss (excluding 11 cents from non-recurring items) of 47 cents per share, comparing unfavorably with the Zacks Consensus Estimate of a loss of 11 cents. Higher operating expenses hurt the bottom line. This wider-than-expected loss disappointed investors. Consequently, shares of JBLU declined 6.4% on Aug 2.

Operating revenues of $2,445 million surged 63.1% year over year but fell short of the Zacks Consensus Estimate of $2,468.3 million. This massive year-over-year jump reflects improving air-travel demand.

Alaska Air Group (ALK Free Report) reported better-than-expected second-quarter 2022 results, wherein both earnings and revenues outperformed the Zacks Consensus Estimate. Quarterly earnings of $2.19 per share (excluding $1.10 from non-recurring items) beat the Zacks Consensus Estimate of $1.94. The bottom line surged more than 100% year over year.

Operating revenues of $2,658 million outperformed the Zacks Consensus Estimate of $2,590.3 million. The top line surged 74% year over year with passenger revenues accounting for 90.9% of the top line and soaring 79% owing to continued recovery in air-travel demand.

ETF in Focus

The $2.55-billion-fund holds about 30 stocks in its portfolio and is concentrated on a few individual securities. All the above-mentioned stocks get a place in the portfolio. The product charges 60 bps in fees.

Bottom Line

While the earnings picture is still moderately gloomy, some companies beat on estimates. This shows a feeble hope for recovery in the coming days. If there is a steady improvement in the coronavirus scenario globally, one can surely see a jump in this otherwise-undervalued product JETS. However, any kind of worsening in the COVID situation may harm the fund over the medium term.

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