22-Oct-2010 4:47 PM

"What a difference a year makes!" - LCC stocks higher as profits flow

It was a good day for most global LCC stocks yesterday, as solid earnings reports and healthy outlooks prompted some heavy buying.

Southwest shares at highest level since Apr-2010; results exceed expectations

Southwest's shares closed up 3.5% yesterday to USD13.62 - its highest close since 23-Apr-2010. The carrier swung to a third-quarter net profit of USD205 million or USD 27 cents per share in 3Q2010 compared to a year-ago loss of USD16 million or USD 2 cents a share with CEO Garly Kelly aptly commenting: “Oh my, what a difference a year makes”. Analysts polled by FactSet Research were looking for earnings of USD 25 cents a share, on average. The stock has gained more than 19% so far in 2010.

Revenue in the recent period jumped 20% to USD3.19 billion as average passenger fare rose 16.3% to USD132.53. On the outlook the carrier stated it expects “solid” revenue improvement in the current period, with the carrier planning to boost capacity by 8% in 1Q2011 and 5% in 2Q2011. Southwest however stated it does not intend to increase its fleet next year.

AirTran (+0.7%), the LCC being acquired by Southwest, is expected to report a profit of USD 17 cents per share based on the average of 12 estimated compiled by Bloomberg.

Norwegian shares gain; delivers in-line third quarter results

Shares in Norwegian Air Shuttle also gained strongly (+6.4%) yesterday after it delivered solid third quarter results, with double-digit revenue and profit growth and showed promise in its battle to gain ground on Scandinavian rival SAS. Revenue stood at USD347 million in the quarter (+24.5%) with an EBITDAR of EUR103 million (+25.5%) and a net profit of USD64.8 million (+41.2%). Yields however remained weak in the period (-13%).

Arctic Securities analyst Kenneth Sivertsen commented: "Underlying results are pretty much as expected but there were some whispers in the market that suggested much worse -- so there is some relief. Also, Norwegian gave positive signs on costs - they are cutting costs better than analysts expected and their guiding going forward prices in expensive jet fuel - so we feel there is headroom on the costs side next year as well."

Skymark soars

In Japan, shares in Japanese LCC Skymark soared 14.6% yesterday as it more than doubled its net income forecast for the 12 months ended Mar-2010 to JPY5,500 million (USD67.8 million) on the back of strong sales.

JetBlue sees continued profit and revenue growth

On the other end of the spectrum, shares in JetBlue Airways closed down 4.8% yesterday but gained in pre-trading. The carrier reported record third quarter profit and revenue and stated it expects momentum to continue through the current period.

Net income jumped to USD59 million (+293%) or USD 18 cents per share in 3Q2010 from USD15 million or USD 5 cents per share in 3Q2009. Analysts on average expected a profit of USD 19 cents per share according to Thomson Reuters I/B/E/S. Quarterly revenue exceeded USD1 billion for the first time, surging 20.5% year-on-year, while average passenger yield (+11.4%), fares (+11.6%) and RASM (+11.1%) were also significantly stronger.

The carrier anticipates continue unit revenue growth with PRASM growth of 12-15% and RASM growth of 10-13% anticipated for 4Q2010 with PRASM anticipated to be up 9-12% in the full year with RASM growth of 7-10%. The carrier also confirmed that it has deferred delivery of ten A320s and opted out of orders for two E190s.

Selected LCCs daily share price movements (% change): 21-Oct-2010