Two airline companies will report quarterly financial results Thursday, before market open. The results and comments on the Microsoft Outage could impact the entire airline sector going forward.
Microsoft Outage: An update from CrowdStrike Holdings CRWD caused chaos for Microsoft Corporation MSFT cloud services and products used by corporations across various sectors from Friday, July 19 onward.
The airline sector was one of the areas hardest hit, with thousands of planes grounded and millions of customers unable to travel on their scheduled flights.
The outage will likely be a key topic when both American Airlines Group AAL and Southwest Airlines Co LUV report second-quarter financial results before the market open Thursday.
While American Airlines flights were grounded, Southwest may have escaped the worst of the disruption. As Benzinga previously reported, Southwest's lack of updating its software over the years may have kept it from cancelling flights and angering customers during the Microsoft Outage.
Earnings Estimates: Analysts expect American Airlines to report second-quarter revenue of $14.36 billion, according to data from Benzinga Pro.
The company reported revenue of $14.06 billion in last year's second quarter. American Airlines has beaten analysts' revenue estimates in only two of the last five quarters.
Analysts expect the company to report earnings per share of $1.05 in the second quarter, compared to $1.92 in last year's second quarter. The company has beaten analysts' earnings per share estimates in three of the last five quarters.
For Southwest Airlines, analysts expect the company to report quarterly revenue of $7.32 billion, up from last year's $7.04 billion in the second quarter. The company has beaten analysts' revenue estimates in two of the last five quarters.
Analysts expect the company to report second-quarter earnings per share of 51 cents, compared to $1.09 in last year's second quarter. The company has beaten earnings per share estimates from analysts in only one of the last five quarters.
What Analysts Are Saying: The airline sector was viewed positively by Deutsche Bank analyst Michael Linenberg recently, with U.S. domestic air travel hitting records in the first half of the year and TSA screenings up year-over-year.
Linenberg said airlines performed well operationally in the second quarter and could see 4% top-line growth and operating margins of around 10%.
The analyst pointed to American Airlines, Delta Air Lines DAL and United Airlines Holdings UAL as the companies to see the biggest top-line growth.
Here are recent analyst ratings for American Airlines and their price targets:
- Bernstein: Downgraded from Outperform to Market Perform and lowered price target from $18 to $12
- Evercore: In-Line rating and lowered price target from $17 to $13
- Barclays: Underweight rating and lowered the price target from $14 to $10
Here are recent analyst ratings for Southwest Airlines and their price targets:
- TD Cowen: Hold rating and lowered the price target from $26 to $19
- Barclays: Equal-Weight rating and raised the price target from $26 to $27
- Deutsche Bank: Buy rating and lowered the price target from $37 to $32
Stock Performance: Both American Airlines and Southwest Airlines stocks have struggled in 2024 with the airline sector facing several challenges along with U.S. passenger growth.
American Airlines stock is down 25.2% year-to-date, as seen on the Benzinga Pro Chart below.
Southwest Airlines stock is down 6.6% year-to-date, as seen on the Benzinga Pro Chart below.
American Airlines shares hit new 52-week lows on Wednesday. The stock is down over 39% in the last year.
The two airlines are among the many in the sector hit hard. With that said, the US Global Jets ETF JETS, which tracks the airline sector, is down only 1.3% year-to-date, making American Airlines and Southwest potential underperformers to peers. Compare that to the SPDR S&P 500 ETF Trust, which is up 14.5% year-to-date.
Key Items to Watch: Along with the Microsoft outage, there are several key items that analysts and investors will be watching for when the airline companies report.
The reports come after Delta Air Lines beat analysts' estimates on revenue, but provided guidance that was below estimates and sent the entire sector lower in early July.
Aside from the recent flight issues, the airline sector has been booming in the U.S. The TSA reported over three million passengers screened on July 7, setting a new record.
Guidance from the airline companies and a look forward could be the key to how the sector trades on Thursday and Friday.
Southwest is also facing a potential activist battle with Elliott Investment Management. The company recently implemented a rights plan to fend off potential pressure. While the airline company likely won't comment on the latest news, it could receive questions on the conference call.
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