Nyse Order Imbalance 272685.0 Shares On Sell Side

In the past week, Copa Holdings CPA reported better-than-expected earnings per share for the third quarter of 2024. However, quarterly earnings declined significantly year over year due to high operating costs. Another Latin American carrier Azul AZUL reported a wider-than-expected loss per share for the third quarter of 2024.

United Airlines UAL expects passenger volumes to be high this winter holiday season, driven by increased travel to European destinations. Allegiant Travel ALGT reported disappointing traffic numbers for October. Spirit Airlines filed for bankruptcy protection, which was widely expected after its merger talks with Frontier Airlines, which is owned by Frontier Group ULCC, halted.

Recap of the Recent Most Important Stories

1. Copa Holdings’ third-quarter 2024 earnings per share of $3.50 surpassed the Zacks Consensus Estimate of $3.48 but declined 20.3% year over year. Revenues of $854.7 million lagged the Zacks Consensus Estimate of $860.3 million and fell 1.5% year over year. Passenger revenues (which contributed 95.7% to the top line) decreased 1.8% from the third quarter of 2023. The downside was mainly led by the last-minute suspension of flights between Panama and Venezuela at the end of July, weaker currencies in Latin America, and increased industry capacity in the region. As a result, passenger yield declined 8.7% year over year and load factor (percentage of seats filled by passengers) decreased 1.6 percentage points.

CPA’s management expects current-year consolidated capacity to grow 9% year over year. The load factor is anticipated at 86% (prior view: 86.5%). The operating margin for the current year is expected to be 21-22%.

CPA was also in the news recently, owing to its upbeat traffic report for October. That news was covered in detail in the previous week’s write-up.

CPA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. Azul incurred a loss of 32 cents per share in the third quarter of 2024, wider than the Zacks Consensus Estimate of a loss of 10 cents. Total revenues of $925.1 million lagged the Zacks Consensus Estimate of $953.2 million. With more people taking to the skies, Azul’s passenger revenues, contributing 92.8% to the top line, grew 4% year over year. For 2024, Azul expects capacity to increase 6% (prior view: 7% growth) from 2023.

3. United Airlines, which had a busy summer this year, carrying a record 48 million passengers, expects travel to surge this winter, led by increased travel to Europe. UAL stated that bookings to European destinations have been exceptionally strong, and have moved up nearly 30% from that recorded in 2019 and 10% year over year. Driven by upbeat passenger volumes, UAL expects to carry 25 million passengers during the holiday period, up 6% from the year-ago level.

4. At Allegiant, scheduled traffic (measured in revenue passenger miles) fell 15.7% from October 2023. Capacity (measured in available seat miles) for scheduled service fell 10.2% year over year. As traffic reduction was more than capacity contraction, the load factor in October 2024 declined to 78.5% from 83.7% a year ago.

5. Budget carrier Spirit Airlines filed for bankruptcy protection and reached an agreement to restructure its debt with its bondholders. Spirit Airlines flights will continue normally during the bankruptcy process. The financially ailing Spirit Airlines was dealt a body blow after the merger talks with Frontier Airlines fell through. Spirit Airlines' mounting debt, combined with declining revenues and rising costs, contributed to it ultimately filing for Chapter 11 bankruptcy protection. As part of the restructuring support agreement with existing bondholders, Spirit Airlines has received backstopped commitments for a $350-million equity investment. Spirit Airlines will complete a deleveraging transaction to equitize $795 million of funded debt.

Performance

The following table shows the price movement of the major airline players over the past week and during the last six months.

The NYSE ARCA Airline Index decreased 6.9% to $63.94, as most stocks in the table above traded in the red. Over the past six months, the NYSE ARCA Airline Index increased 2.3%.

What’s Next in the Airline Space?

With the earnings season over, we expect updates from many carriers regarding their plans to meet the anticipated demand swell during the winter travel season.

Zacks Investment Research

On Nov. 14, 2024, Azul S.A. (AZUL) reported lower-than-expected third-quarter 2024 results, wherein the company’s bottom line and top line lagged the Zacks Consensus Estimate.

Adding to the bearishness, Azul has lowered its 2024 capacity expectation. The company now expects its full-year capacity to increase by almost 6% (prior view: up 7%) from 2023. The change in expectation of capacity growth is due to the reduction in AZUL’s domestic capacity due to the devastating floods in Rio Grande do Sul, the temporary reduction in AZUL’s international capacity in the first half of the year and manufacturers’ new aircraft delivery delays.

AZUL shares have plunged 9.7% following its Nov. 14 earnings release.

The lower-than-expected results naturally raise the question: Should investors buy AZUL stock now following the dip in share price? A more in-depth analysis is needed to make that determination. Before diving into AZUL’s investment prospects, let’s take a glance at its quarterly numbers.

Snapshot of AZUL’s Q3 Results

Azul incurred a loss of 32 cents per share in the third quarter of 2024, wider than the Zacks Consensus Estimate of a loss of 10 cents.

Find the latest EPS estimates and surprises on ZacksEarnings Calendar.

Total revenues of $925.1 million lagged the Zacks Consensus Estimate of $953.2 million. Despite lagging the consensus mark, AZUL’s top line benefited from a healthy demand environment and robust ancillary revenues in the third quarter of 2024. With more people taking to the skies, Azul’s passenger revenues, contributing 92.8% to the top line, grew 4% year over year.

Cargo revenue and other grew 8.8% year over year owing to improved performance of AZUL’s ancillary revenues and solid domestic demand for its cargo solutions and exclusive network, and the partial recovery of its international operation. These were, however, partially offset by the reduction in AZUL’s domestic capacity in RioGrande do Sul state.

Consolidated traffic, measured in revenue passenger kilometers (RPKs), rose 4.3% (up 8.4% domestic but down 8.4% on the international front) year over year. Consolidated available seat kilometers (ASK), measuring an airline's passenger-carrying capacity, increased 3.7% from the year-ago quarter, with a 6.8% rise in domestic capacity and a 7% decline in international capacity. Since traffic outpaced the capacity expansion, load factor (percentage of seats filled with passengers) grew 0.5 percentage points to 82.6%. Our estimate is pegged at 82.8%.

Azul’s total revenues per ASK or RASK were R$42.87 cents, up 12.2% sequentially and 0.6% year over year. Passenger revenues per ASK or PRASK increased 12.6% sequentially and 0.3% year over year on the back of AZUL’s rational capacity deployment and the sustainable competitive advantages of its business model.

Some Tailwinds Working in Favor of AZUL Stock

AZUL’s consistent focus on managing costs throughout its business has paid off. Evidently, cost per ASK (CASK) stayed almost flat compared with the reported figure for the third quarter of 2023. CASK, excluding fuel, fell 2.8% year over year. This marks a solid improvement given the 13.6% average depreciation of the Brazilian real against the US dollar and 4.2% inflation over the last 12 months.

AZUL also hopes to reduce its CASK with the help of its next-generation fleet, along with several other efficiency initiatives. To this end, AZUL has successfully reduced its full-time equivalent (FTE) employees by 1.5% sequentially, even with the airline growing 10%. This led to an improvement of FTE per ASK of 11.3%.

AZUL’s cost-cutting initiatives should boost profitability. Notably, in third-quarter 2024, AZUL reported an all-time record EBITDA of R$1.65 billion, increasing 6% year over year and 57.1% sequentially. EBITDA margin of 32% improved 50 percentage points from the year-ago quarter. Profitability amid increasing fuel cost per liter and higher average exchange rate is noteworthy.

Backed by a robust demand environment in both domestic and international markets, the positive trend in fuel prices and a higher number of fuel-efficient aircraft entering the fleet, Azul continues to anticipate its full-year EBITDA to be around R$6.0 billion.

For 2025, AZUL anticipates EBITDA to be R$7.4 billion, owing to strong travel demand, a rational competitive environment, and robust growth in its business units. Additionally, the restructured financing plan (aimed at improving liquidity and cash generation and reducing leverage) is likely to enable Azul to achieve its target for 2025.

Impressive Valuation Picture for AZUL Stock

From a valuation perspective, AZUL is trading at a discount compared to the industry, going by its forward 12-month price-to-sales ratio. The reading is also below its median over the last five years. The company has a Value Score of A.