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Forget Mixed Airlines Earnings: Play JETS ETF on Upbeat Outlook

The U.S. airline industry demonstrated a mixed-to-downbeat performance in the first quarter of 2023, with three out of six major carriers missing estimates on both counts, one coming up with mixed result and the rest two beating on both lines.

Despite recovering demand, some challenges remain, such as the increasing fuel costs and chances of slow growth in business travel. Higher rates and global economic slowdown are other concerns. However, due to the ebbing pandemic, easing of travel restrictions and pent-up demand in the leisure sector, most carries have come up with upbeat outlook. Capacity growth is expected ahead.

Investors should keep a close eye on the industry as it continues to navigate the post-pandemic landscape. Notably, most U.S. airlines have a Zacks Rank #1 (Strong Buy) or #2 (Buy). Pure-play airlines ETF U.S. Global Jets ETF (JETS) was down about 2% during the earnings reporting of those key U.S. airlines (as of Apr 27, 2023).

Delta Misses Overall, Upbeat Guidance

On Apr 13, Delta Air Lines DAL initiated the first-quarter 2023 earnings season for the airline space. This Atlanta-based carrier reported lower-than-expected earnings per share and revenues. However, investors were impressed by the upbeat outlook for second-quarter 2023.

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Delta’s first-quarter 2023 earnings (excluding 82 cents from non-recurring items) of 25 cents per share missed the Zacks Consensus Estimate of 29 cents. Volatile fuel price and unfavorable weather conditions led to this downtick. Revenues of $12,759 million missed the Zacks Consensus Estimate of $12,767.4 million. Driven by higher air-travel demand, total revenues increased 36.49% on a year-over-year basis.

For second-quarter 2023, DAL, expects capacity to increase 17% from second-quarter 2022 actuals. Backed by strong booking trends for summer, the company expects June quarter revenues (adjusted) to increase in the 15-17% band from second-quarter 2022 actuals.

United Airlines Beats Overall

Meanwhile, United Airlines UAL United Airlines incurred first-quarter 2023 loss (excluding 4 cents from non-recurring items) of 63 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 73 cents. In the year-ago quarter, UAL had incurred a loss of $4.24 per share when air-travel demand was not as buoyant as in the current scenario. Operating revenues of $11,429 million beat the Zacks Consensus Estimate of $11,420.9 million. UAL’s revenues increased 51.1% year over year owing to upbeat air-travel demand.

For the second quarter of 2023, United Airlines expects capacity to improve 18.5% from the year-ago reported figure. Revenues for the June quarter are anticipated to grow 14-16% year over year. Riding on upbeat air-travel demand, UAL expects to be profitable in second-quarter 2023. For 2023, Capacity is anticipated to grow in the high teens versus 2022 actuals.

Alaska Airlines Misses Overall

Alaska Air Group, Inc. ALK reported first-quarter 2023 loss of 62 cents per share, wider than the Zacks Consensus Estimate of a loss of 48 cents. In the year-ago quarter, ALK incurred a loss of $1.33 per share. Operating revenues of $ 2,196 million missed the Zacks Consensus Estimate of $2,202.5 million. The top line jumped 31% year over year. For the second quarter of 2023, Alaska Air expects capacity to improve by 6-9% from the year-ago reported figure. Total revenues are anticipated to grow 2.5-5.5% year over year.

JetBlue Beats Overall

JetBlue Airways’ JBLU first-quarter 2023 loss (excluding 24 cents from non-recurring items) of 34 cents per share was narrower than the Zacks Consensus Estimate of a loss of 38 cents. In the year-ago quarter, JBLU incurred a loss of 80 cents per share.  Operating revenues of $2,328 million climbed 34.1% year over year and beat the Zacks Consensus Estimate of $2,322.5 million. The double-digit year-over-year jump reflected improving air-travel demand.

For second-quarter 2023, capacity is anticipated to increase in the 4.5-7.5% range. For full-year 2023, capacity is expected to increase in the band of 5.5-8.5%. Total revenues for 2023 are forecast to increase year over year in the high single-digit to low double-digit range. Management expects 2023 earnings per share to be between 70 cents and $1.00. The Zacks Consensus Estimate was pegged at 54 cents.

American Airlines Reports Mixed Q1 Results

American Airlines’ AAL first-quarter 2023 earnings (excluding 3 cents from non-recurring items) of 5 cents per share surpassed the Zacks Consensus Estimate by a penny despite higher costs. In the year-ago quarter, AAL incurred a loss of $2.32 per share. Operating revenues of $12,189 million increased 37% year over year, reflecting upbeat air-travel demand. However, the top line missed the Zacks Consensus Estimate of $12,198.9 million.

AAL expects system capacity for the June-end quarter to increase 3.5-5.5%. AAL expects the June-end quarter's earnings per share (excluding net special items) to be $1.20-$1.40. The Zacks Consensus Estimate was pegged at 97 cents. AAL expects 2023 adjusted earnings per share between $2.50 and $3.50. The Zacks Consensus Estimate was pegged at $2.62 (below the mid-point of the guided range).

Southwest Airlines Misses Overall

Southwest Airlines Co. LUV reported first-quarter 2023 loss of 27 cents per share, wider than the Zacks Consensus Estimate of a loss of 21 cents. In the year-ago reported quarter, LUV had reported a loss of 32 cents per share. Revenues of $5,706 million lagged the Zacks Consensus Estimate of $5,741.4 million but improved 21.6% year over year.

For 2023, Southwest now expects capacity to improve 14-15% (prior view: up 15-16%) from the 2022 level. Capital expenditures are now anticipated to be $3.5 billion (prior view: $4 billion) for 2023.

Buy Airlines ETF JETS

The underlying U.S. Global Jets Index tracks the performance of Airline Companies across the globe with an emphasis on domestic passenger airlines. Half of the fund is owned by the afore-mentioned stocks. The fund charges 60 bps in fees.

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report

United Airlines Holdings Inc (UAL) : Free Stock Analysis Report

Southwest Airlines Co. (LUV) : Free Stock Analysis Report

JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report

American Airlines Group Inc. (AAL) : Free Stock Analysis Report

Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report

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