Airlines ETF Fly Higher Despite Mixed Earnings

Many airline companies, which belong to a bottom-ranked Zacks industry (bottom 15%), missed revenue estimates slightly but beat on the bottom line this earnings season. Boeing’s (NYSE:BA) 737 MAX grounding has hurt the likes of American Airlines (NASDAQ:AAL) and Southwest Airlines Co. (NYSE:LUV) .

Decent leisure and business travel demand as well as low fuel prices work in favor of the sector. Normally, the sector benefits from higher air travel demand in the holiday season. Let’s delve a little deeper into the earnings releases this reporting cycle.

Inside the Headlines

Delta Air Lines (NYSE:DAL) , which kick-started the third-quarter 2019 earnings season for the airline space, reported earnings per share (excluding 1 cent from non-recurring items) of $2.32, which surpassed the Zacks Consensus Estimate by 5 cents. The bottom line also improved 28.9% on a year-over-year basis mainly due to low fuel costs. Operating revenues in the quarter under review came in at $12,560 million, marginally missing the Zacks Consensus Estimate. However, the top line increased on a year-over-year basis.

Delta expects fourth-quarter earnings between $1.20 and $1.50 per share. The mid-point of the guided range ($1.35) is below the Zacks Consensus Estimate of $1.50.

United Continental Holdings (NASDAQ:UAL) third-quarter 2019 earnings (excluding 8 cents from non-recurring items) of $4.07 per share surpassed the Zacks Consensus Estimate of $3.94. Moreover, the bottom line improved 33% year over year. Operating revenues of $11,380 million increased 3.4% year over year but missed the Zacks Consensus Estimate of $11,428.2 million.

The carrier now anticipates 2019 adjusted earnings between $11.25 and $12.25 compared with $10.5-$12 expected previously. The mid-point of the guided range — $11.75 —falls slightly short of the Zacks Consensus Estimate of $11.81.

American Airlines’ third-quarter 2019 earnings (excluding 46 cents from non-recurring items) of $1.42 per share surpassed the Zacks Consensus Estimate by 4 cents. Moreover, the bottom line improved 25.7% on a year-over-year basis. Revenues came in at $11,911 million, missing the Zacks Consensus Estimate of $11,940.9 million. The top line improved 3% on a year-over-year basis.

Southwest Airlines delivered third-quarter 2019 earnings per share of $1.23, beating the Zacks Consensus Estimate of $1.09. Moreover, the bottom line improved 13.9% year over year despite higher costs related to the MAX grounding. Operating revenues of $5,639 million lagged the Zacks Consensus Estimate of $5,642 million.

JetBlue Airways Corporation’s (NASDAQ:JBLU) third-quarter 2019 earnings per share (excluding 4 cents from non-recurring items) came in at 59 cents, which outpaced the Zacks Consensus Estimate of 53 cents. Moreover, quarterly earnings surged 37.2% on a year-over-year basis. Operating revenues totaled $2,086 million, in line with the Zacks Consensus Estimate.

Alaska Air Group Inc.’s ( (NYSE:ALK) ) third-quarter adjusted earnings per share (excluding 3 cents from non-recurring items) of $2.63 beat the Zacks Consensus Estimate by a penny. Moreover, the bottom line surged 37.7% year over year on higher revenues and 77% drop in merger-related costs. Revenues came in at $2,389 million, above the Zacks Consensus Estimate of $2,381 million. The top line also rose 8% year over year.

ETF in Focus

Since results were mainly mixed, investors having a strong stomach may go for a basket approach or invest in U.S. Global Jets ETF (KL:JETS) . This approach makes up for company-specific concentration risks as one company’s weakness is compensated by another company’s strength (read: Time for Undervalued Sector ETFs as Stocks Hit All-Time High?).

JETS in Focus

The $51.7-million fund holds about 30 stocks in its portfolio and is concentrated on a few individual securities. Southwest Airlines (12.18%), American Airlines (12.04%), United Continental (11.79%) and Delta Airlines (10.76%) take the first four positions in the fund.

Alaska Air holds the seventh position in the fund with 4.10% weight. The product charges 60 bps in fees (see all industrials ETFs).

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