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Airline Stock Roundup: SAVE Rejects JBLU's Takeover Offer, ALGT in Focus

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In the past week, Spirit Airlines SAVE took a vital decision to reject JetBlue Airways’ JBLU enhanced offer to get acquired by the latter. Spirit’s management cited regulatory risks while rebuffing the offer. Instead, SAVE announced that it was sticking to the takeover bid worth $2.9-billion ($6.6 billion when the assumption of net debt and operating lease liabilities are considered), put forward by Frontier Group Holdings ULCC, the parent company of Frontier Airlines, in February.

Spirit was also in the news on the earnings front as it released s first-quarter 2022 earnings report. Allegiant Travel Company ALGT too released first-quarter 2022 earnings results in the past five trading days.

With the first-quarter earnings season underway, a plethora of airline releases was also discussed in the previous week’s write-up.

Recap of the Latest Top Stories

1.After consulting legal experts, Spirit’s board of directors decided that the unsolicited offer worth of $33 per share in cash along with a number of deal sweeteners, received from JetBlue, is by no means a 'Superior Proposal' as defined in SAVE's merger agreement with Frontier.

Per Spirit’s chairman of board of directors, Mac Gardner, “Spirit continues to believe in the strategic rationale of the proposed merger with Frontier and is confident that it represents the best opportunity to maximize long-term shareholder value. After a thorough review and extensive dialogue with JetBlue, the Board determined that the JetBlue proposal involves an unacceptable level of closing risk that would be assumed by Spirit stockholders. We believe that our pending merger with Frontier will start an exciting new chapter for Spirit and will deliver many benefits to Spirit shareholders, Team Members and Guests." Sprit Airlines, currently carrying a Zacks Rank #4 (Sell), expects the deal with Frontier to close in the second half of 2022.

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

2. Ryanair Holdings’ RYAAY load factor (percentage of seats occupied by passengers) exceeded 90% (91% to be exact) in April 2022. This is the first time that the reading attained an astronomical figure ever since the pandemic had begun in 2020. In April, Ryanair carried 14.2 million passengers, well above the 11.2 million headcount transported in March. The month was the second in a row wherein Ryanair carried more passengers than in the corresponding pre-pandemic period. In April, Ryanair operated more than 82,600 flights.

3. Spirit Airlines’ loss (excluding 19 cents from non-recurring items) of $1.60 per share was wider than the Zacks Consensus Estimate of a loss of $1.54 but narrower than the year-ago quarter’s loss of $2.48. In first-quarter 2019 (pre-coronavirus era), the carrier had reported earnings of 84 cents per share.

In first-quarter 2022, operating revenues of $967.3 million increased in excess of 100% year over year. The upside reflects improving air-travel demand. Revenues were also higher than the Zacks Consensus Estimate of $951.3 million. In first-quarter 2022, passenger revenues, which accounted for the bulk of the top line (98.2%), increased 110.9% year over year (when the impact of coronavirus on air-travel demand was severe) to $949.7 million. Passenger revenues were up 13.3% from the first-quarter 2019 actuals. Other revenues surged 60.6% year over year to $17.57 million.

All comparisons (in %) are presented below on a year-over-year basis.

Reflecting the uptick in air-travel demand, consolidated traffic (measured in revenue passenger miles) at Spirit soared 57.5% in the reported quarter. To cater to this increased demand, capacity (measured in available seat miles) expanded to 46.9%. Load factor increased 5.1 points to 77.2% in the first quarter of 2022. Total operating revenue per available seat miles (TRASM) jumped 42.7% to 8.25 cents in the reported quarter. The average yield surged 33.1% to 10.69 cents.

Adjusted operating expenses (excluding fuel) escalated 34.5% to $751.1 million. Average fuel cost per gallon in the reported quarter rose to $2.41 from $1.32 as oil prices shot up. Fuel gallons consumed skyrocketed 57.6% to $123.3 million, reflecting the usage of more planes to cater to upbeat air-travel demand. Adjusted cost per available seat miles (CASM) excluding fuel decreased 10.5% in the reported quarter, reflecting the expanded capacity. Spirit took the delivery of three new A320neo aircraft during first-quarter 2022. The total number of aircraft in its fleet at the end of the quarter was 176. SAVE expects to end 2022 with 197 planes in its fleet. It exited the quarter with unrestricted cash, cash equivalents and short-term investments, and the liquidity available under the carrier’s revolving credit facility of $1.6 billion. Capital expenditures for the quarter were $53.2 million, primarily related to the purchase of spare parts.

SAVE expected adjusted operating expenses for the June quarter in the range of $1,335-$1,365 million. Adjusted pre-tax margin is expected in the -3 to -5% range. Fuel gallons consumed are expected to be $130.7 million in the second quarter. Fuel price per gallon is anticipated in the $3.85-$3.90 range. Effective tax rate is expected to be 21%. Available seat miles are anticipated to increase roughly 10.5% from second-quarter 2019 actuals.

4. Allegiant Travel reported first-quarter 2022 loss (excluding 32 cents from non-recurring items) of 12 cents per share. The Zacks Consensus Estimate was pegged at earnings of 10 cents per share. Operating revenues of $500.1 million beat the Zacks Consensus Estimate of $494.7 million and increased 79.2% on a year-over-year basis.

Passenger revenues, which accounted for the bulk (92.7%) of the top line, soared 80.7% on a year-over-year basis. The upside can be attributed to improvement in air-travel demand. Air traffic (measured in revenue passenger miles or RPMs) for scheduled service surged 64.2% in the quarter under review. Capacity (measured in available seat miles or ASMs) also increased 15.1% year over year. Load factor widened 2360 basis points to 78.9% in the reported quarter, as traffic surge outweighed capacity expansion.

Operating cost per available seat miles (CASM), excluding fuel, escalated 66.4% year over year to 7.12 cents. Average fuel cost per gallon (scheduled) shot up 65.4% to $3.01 in the quarter. Total scheduled service passenger revenue per available seat miles (TRASM) rose 56.5% to 10.78 cents. ALGT exited the March quarter with 112 planes in its fleet. Fleet size at the end of 2022 is expected to be 124. For second-quarter 2022, fuel cost per gallon is expected to be at $4.

Performance

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

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The table above shows majority of the airline stocks traded in the green over the past week. The NYSE ARCA Airline Index inched up 0.8% to $76.74. Over the course of the past six months, the NYSE ARCA Airline Index declined 20%.

What's Next in the Airline Space?

First-quarter 2022 earnings reports of some Latin American carriers are expected in the coming days.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report

JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report

Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report

Allegiant Travel Company (ALGT) : Free Stock Analysis Report

Frontier Group Holdings, Inc. (ULCC) : Free Stock Analysis Report

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