The Airline Transportation sector has seen a huge turnaround from reduced labor costs, increased consumer spending, fewer flight cancellations and increased carrying capacity. And two carriers are turning these trends into revenue.
It’s nearly impossible to discuss any positive news about the airline industry without inadvertently invoking flight-related metaphors. Nevertheless, recent earnings reports have inspired quite a few well-deserved nods of accomplishment.
The Airline Transportation sector of the Zacks Industry Rank list gained 84 positions last week; with several new earnings reports beating expectations. This is a large category of 25 companies, which now holds a rank of 92 out of 260 sectors. With positive earnings revisions outpacing negative 44 to 13, airlines are now averaging positive Earnings per Share (EPS) surprises of +27%.
There are a number of factors affecting this turnaround: reduced labor costs, increased consumer spending (dollar per mile), fewer flight cancellations, increased carrying capacity and the simple fact that people are just flying more this year compared to last. Combined, this means good news for an industry, which has hurt more than most over the past decade.
Two of the carriers which stood out this week are turning these trends into revenue. With upgrades Strong Buy from a Buy rating, this may indicate a positive future performance for these stocks in response to further positive earnings estimate revisions. Paying attention to sector performance, which affects not only individual businesses but the industry as a whole, is beneficial in developing a good investment strategy.
This industry seems to have departed its most turbulent years, with the tailwind of economic turnaround giving investors a first-class ticket to soaring profits. Just beware the overhead baggage of rising fuel costs, which may delay earnings and lead investors to find the nearest exit row.
See which two carriers stood out.
Spirit Airlines (SAVE)
SAVE was upgraded to a Buy last week from Neutral. Its next expected earnings report is on Oct. 30, 2013.
Spirit Airlines Inc. operates an airline based in Fort Lauderdale providing travel opportunity principally to and from South Florida, the Caribbean and Latin America. Spirit Airlines is based in Miramar, Fla. It is looking for +14% annual sales growth and +19% annual earnings growth next year.
This airline has strung together an impressive series of meeting earnings expectations or answering with a beat. It has had an earnings surprise of +15% in the last three quarters. According to the most accurate analyst, the coming quarterly report on Oct. 30 looks to offer a +10% beat.
Republic Airway (RJET)
RJET is a Strong Buy, moving up from a Buy last week. This company also reports quarterly earnings on Oct. 30, 2013.
Republic Airways, based in Indianapolis is an airline holding company that owns Chautauqua Airlines, Frontier Airlines, Republic Airlines and Shuttle America flights operated under partner brands, including American Eagle, Delta Connection, United Express and US Airways Express.
The airline currently employs approximately 10,000 aviation professionals. Republic Airways carried 7% more passengers in September than in the same period in 2012. RJET’s most recent earnings surprise was +7%.
John Blank is the Chief Equity Strategist for Zacks.
The information supplied above by Zacks Investment Research Inc. contains opinions based on factual research which may or may not be accurate. Neither Zacks nor Intellisphere will assume any liability for losses from investment decisions based on this information.