Earnings Or Coronavirus: What Will Impact Airlines ETF Ahead?

It’s been close to a month since Delta Air Lines Inc. (NYSE:DAL) kick-started the fourth-quarter earnings season for the airline space. Overall, the season has been mixed-to-upbeat for the industry. Airlines companies belong to a favorable Zacks industry (placed at the top 14% of 250+ industries). Let’s delve a little deeper.

However, the global airlines industry has been of late drawing attention, more because of the coronavirus outbreak in China and less because of earnings. An increasing number of global carriers are suspending flights to China which include U.S. airlines like Delta Airlines, American Airlines (NASDAQ:AAL) and United Airlines (NASDAQ:UAL) (read: Wining & Losing ETF Areas on Coronavirus Outbreak).

SARS impacted global airlines by $7 billion, of which Asia-Pacific carriers suffered a $6-billion loss and North American airlines were dealt a $1-billion blow, per the International Air Transport Authority (IATA). As the number of Chinese air travelers has surged meaningfully since 2003, the coronavirus has high chance of being a bigger threat to airlines than SARS, per Ivan Su, an analyst with financial services firm Morningstar. Notably, flight suspensions and travel restrictions could be more prolonged than during the SARS eruption.

Let’s see how airlines stocks are performing.

Inside the Earnings Headlines

Delta Air Lines reported fourth-quarter 2019 earnings per share (excluding 1 cent from non-recurring items) of $1.7 per share, surpassing the Zacks Consensus Estimate of $1.4. Earnings increased 30.8% on a year-over-year basis, mainly due to low fuel costs. Revenues of $11,439 million beat the Zacks Consensus Estimate of $11,342.3 million. Revenues increased 6.5% on a year-over-year basis.

United Airlines Holdings Inc.’s fourth-quarter 2019 earnings (excluding 14 cents from non-recurring items) of $2.67 per share surpassed the Zacks Consensus Estimate of $2.64. Moreover, the bottom line improved 10.8% year over year, mainly on lower fuel costs. Operating revenues of $10,888 million increased 3.8% year over year and also marginally beat the Zacks Consensus Estimate of $10,886.2 million. Higher passenger revenues drove the top line.

American Airlines Group Inc.’s fourth-quarter 2019 earnings (excluding 20 cents from non-recurring items) of $1.15 per share matched the Zacks Consensus Estimate. However, the bottom line improved 10.6% on a year-over-year basis, backed by low fuel costs. Operating revenues of $11,313 million increased 3.4% year over year and also marginally beat the Zacks Consensus Estimate of $11,308.3 million. Higher passenger revenues drove the top line.

Low-cost carrier Southwest Airlines Co. (NYSE:LUV) delivered fourth-quarter 2019 earnings per share of 98 cents, significantly missing the Zacks Consensus Estimate of $1.11. Moreover, the bottom line declined 16.2% year over year due to higher costs from the MAX groundings. Meanwhile, operating revenues of $5,729 million surpassed the Zacks Consensus Estimate of $5,719 million. The top line also inched up marginally. However, passenger revenues accounting for bulk (92.8%) of the top line dropped slightly year over year.

JetBlue Airways Corporation’s (NASDAQ:JBLU) fourth-quarter 2019 earnings per share came in at 56 cents per share, which surpassed the Zacks Consensus Estimate by a penny. Moreover, quarterly earnings increased 12% on a year-over-year basis, mainly due to low fuel costs. Operating revenues totaled $2,031 million, narrowly beating the Zacks Consensus Estimate. Moreover, it increased 3.2% from the year-ago number. Passenger revenues, which accounted for bulk of the top line (95.9%), improved 3% year over year in the quarter under review. Other revenues were also up 6.3%.

Alaska Air Group Inc. (NYSE:ALK) fourth-quarter 2019 earnings per share of $1.46 beat the Zacks Consensus Estimate by 5 cents. Moreover, the bottom line surged 94.7% year over year on low fuel costs. Revenues came in at $2,228 million, surpassing the Zacks Consensus Estimate of $2,220.5 million. The top line increased approximately 8% year over year. Passenger revenues — contributing 92.3% to the top line — were up 8% on a year-over-year basis.

ETF in Focus

Since the results were mixed-to-upbeat and there has been the coronavirus threat, U.S. Global Jets ETF (KL:JETS) added only 0.4% in the past month (as of Feb 11, 2020). Notably, the ETF approach takes care of company-specific concentration risks as one company’s strength compensates for another company’s weakness.

So, it is better to tap the ETF option for the U.S. airlines industry as stock performances have been uneven in the past month. Investors should note that the afore-mentioned stocks have considerable exposure to the fund JETS (see all industrials ETFs).

The fund has a Zacks ETF Rank #3 (Hold) with a high outlook. While the earnings scenario is decent, investors may choose to stay on the sidelines till the coronavirus scare subsides.

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