American Airlines and Southwest Airlines Co yesterday posted fourth-quarter profits and 2019 forecasts that beat Wall Street expectations thanks to healthy passenger demand and easing investor concerns about slower global economic growth.
Airlines did warn about the rippling effects of a US partial government shutdown, which is causing long lines at some airports and air space delays due to stretched federal security and air traffic control staff, who are obliged to work but are not being paid.
Dallas, Texas-based Southwest said the shutdown had knocked between $10mn and $15mn off its revenue in January and was delaying its plan to launch service to Hawaii, which was targeted for early this year.
But as the government closure dragged into its 34th day, many non-essential federal workers, including those who oversee route authorisations and aircraft certifications, remained furloughed.
No 1 US carrier American said revenues per mile flown, a closely watched performance metric which compares sales to flight capacity, would be flat to up 2% in the current quarter, taking into account the shutdown which it said was impacting 0 to 14-day bookings.
“We encourage the government to open,” American chief executive officer Doug Parker said.
Still, American said overall demand, including for corporate travel, remained strong, and forecast $1bn of additional revenue in 2019 as it continues to expand its Premium Economy product and adds new gates at its Dallas-Fort Worth and Charlotte hubs.
The company, based in Fort Worth, Texas, forecast full-year earnings per share to rise between 21% and 65%, well above the 30% increase expected by analysts on average, according to IBES data from Refinitiv. It said net income, excluding special items, rose 8.3% to $481mn, or $1.04 per share, in the fourth quarter ended December 31, beating analysts’ estimate of $1.01 per share.
Total operating revenue rose 3.1% to $10.94bn.
Southwest, the fourth largest US airline by passenger traffic, forecast revenues per available seat mile to rise in the four to 5% range in the first quarter after a 1.8% rise in the fourth quarter.
Net income at Southwest, with a reputation as a employee and customer friendly low-cost carrier, fell to $654mn, or $1.17 per share, from $1.75bn, or $2.94 per share, a year earlier.
That beat forecasts for quarterly profit of $1.07 per share, according to IBES data from Refinitiv.
The year earlier quarter included a tax benefit of $1.3bn.
New York-based JetBlue Airways Corp, the sixth largest US airline, also posted quarterly profit yesterday above Wall Street forecasts.
The owner of India’s biggest airline by market share, IndiGo, reported a rise in airfare in November, December and stretching into January after suffering a year of decline, and said it would boost growth with the expansion of international services.
Investors welcomed the news, with InterGlobe Aviation Ltd shares rising as much as 5% to their highest in three weeks.
The optimism comes after major carriers swung to a loss in July-September as high oil prices, a weak rupee and domestic price competition eroded margins, leaving IndiGo’s debt-laden rival Jet Airways Ltd struggling to stay in the air.
For InterGlobe, the September quarter marked its first loss since debuting on the stock exchange in 2015.
InterGlobe on Wednesday returned to profit in October-December, albeit a 75% fall from the same period a year earlier to Rs1.91bn ($26.80mn) due to higher costs.
Morgan Stanley analysts said the profit missed their estimate due to lower passenger volume, but that a rise in passenger yield — a proxy for airfare — was a larger positive for investors.
IndiGo’s passenger yield rose for the first time since the end of 2017, with a busy festive period pushing the yield up by 3.7% in October-December versus a year prior.
In the September quarter, the yield fell 9.7%.
“For the time being, the better environment that we had in November and December has continued so far,” chief commercial officer Willy Boulter said on an analyst call.”We see there is some discipline in imposing advance purchase requirements.”
IndiGo last year said fares were down in part because rivals were not charging the usual premium for last-minute bookings.
Its load factor, a measure of seats filled, fell 3.2 percentage points to 85.3%. Chief financial officer Rohit Philip said fare hikes in November and December offset that decline, making it the “right trade-off”.Kotak Institutional Equities analyst Garima Mishra said the December quarter performance was stronger than expected.
“We believe the worst in terms of yield pressure and fuel costs is behind,” she said in a note to clients.
Low-cost carrier IndiGo, which took delivery of 55 aircraft in 2018, controls 41.5% of India’s domestic market but carries 6% of the country’s international passengers.
For an interactive graphic on India’s biggest airlines by market share, click https://tmsnrt.rs/2S3rKqG It expects to expand passenger-carrying capacity by 34% in January-March, almost a third of which will come from overseas routes using longer-range Airbus SE A321neo planes which have a higher seating capacity, said Interim Chief Executive Rahul Bhatia.
“In the past, we have focused on setting up the right network domestically.
Now with this in place we are looking to strengthen our international presence,” Bhatia said.
IndiGo will begin direct flights to Istanbul in March and add destinations.
The carrier also plans to use A321neo planes on busy domestic routes, especially flights to and from congested airports such as Mumbai where new slots are difficult to secure.
InterGlobe chief operating officer Wolfgang Prock-Schauer also said IndiGo, which operates 208 planes, including 66 A320neos, does not expect issues with the A320neos’ Pratt & Whitney engines to affect international expansion.
IndiGo has been forced to ground its A320neo aircraft on several occasions due to issues with the engines.
India’s air safety watchdog last week ordered extra checks on the aircraft which IndiGo is carrying out, Prock-Schauer said.
Textron Inc forecast 2019 profit above analysts’ estimates yesterday, after reporting stronger-than-expected fourth-quarter results on higher demand for its Cessna business jets, sending its shares up as much as 8.7%. Business jet demand is recovering in the United States, thanks to a strong economy and a tax windfall handed to Corporate America by President Donald Trump last year.
“A big chunk of the growth in revenue we’ll see year-over-year is tied into the Longitude (business jet),” chief executive officer Scott Donnelly said on a post earnings call with analysts.
The Cessna Citation Longitude jet received a provisional certification in the fourth quarter, allowing operators to begin flight training for deliveries in 2019, Donnelly said.
It now awaits final certification from the Federal Aviation Administration that is pending due to US government shutdown, the longest in the country’s history.
“The aircraft is in a very good place. Production line is rolling,” Donnelly said.
Textron is banking on its newest mid-sized business jet, Cessna Citation Longitude, to further bolster its luxury jet business.
NetJets, the luxury plane unit of Warren Buffett’s Berkshire Hathaway Inc, announced a deal with Textron in October to buy up to 175 Longitudes and 150 Hemispheres jets.
The company said it expects 2019 profit of $3.55 to $3.75 per share, surpassing the average analyst’ estimate of $3.49 per share, according to Refinitiv data.
In the fourth quarter, the company, which also makes Bell helicopters, said it delivered 63 business jets in the fourth quarter, up from 58 a year earlier.
Turboprop aircraft deliveries also rose to 67 units from 45.
That helped drive a 12% rise in revenue at the company’s main aviation unit.
Total revenue, however, fell 6.6% to $3.75bn due to weak demand for its Bell helicopters.
The company reported net income of $246mn for the quarter ended December 29, compared with a year-earlier loss when it booked a tax-related charge.
Excluding items, Textron earned $1.15 per share, above analysts’ average estimate of 98 cents per share, according to Refinitiv data.
Finnish elevator maker Kone warned its sees no growth or a decline in orders this year from China, its main market, adding to disappointment over a profit forecast which missed analyst estimates.
“The increased uncertainty in many major markets impacts the visibility of the overall market development for 2019...
In China the market is expected to decline slightly or to be stable in units ordered,” Kone said in yesterday’s earnings report.
When the earnings report was released, analysts at Jefferies said they were disappointed by the China outlook which they had expected to be flat.
The elevator sector has struggled in recent years with falling installations in China, but Kone’s US-based rival Otis said on Wednesday it expected continued infrastructure spending by the Chinese government.
Kone’s chief executive Henrik Ehrnrooth declined to speculate about the Chinese government’s willingness to stimulate investments this year.
“We have seen good activity on the infrastructure side,” he told Reuters, but added that overall construction business in China had been hit by the restrictions imposed on the property markets by the Chinese government.
Ehrnrooth said China had set restrictions both for constructors and their clients, on maximum prices and loans as well as for investors on the required share of own capital and the number of houses one can own.
“This has clearly slowed down the property markets...It departs from what President Xi constantly says, that houses are for living and not for speculation,” Ehrnrooth said.
Kone reported higher fourth-quarter profit of €319.6mn, up from €302.6mn a year earlier and roughly in line with analysts’ expectations of 323mn.
The Finnish firm said it expected its adjusted operating profit to return to growth in 2019 and reach between €1.12bn and €1.24bn.
The mid-point of Kone’s forecast range is €1.18bn, which compares with forecasts for €1.23bn in a Reuters poll of analysts covering the company.
Jefferies said the adjusted EBIT guidance range meant the market consensus was now at the upper end of the range and would likely see earnings forecast adjusted lower.
“We believe our profit turns to growth, as it did now in the fourth quarter and we believe our full-year profit will turn to growth this year,” Kone’s Ehrnrooth said.
South Korea’s Hyundai Motor surprised the market yesterday by posting its first quarterly net loss in at least eight years as its vehicle sales slumped in the key China market.
Hyundai has been grappling with the lack of attractive models and strong branding in China, its biggest market where the auto industry’s sales contracted for the first time in more than two decades last year due to the Sino-US trade war and the phasing out of tax cuts on smaller cars.
The automaker, which together with affiliate Kia Motors was the third-biggest automaker in China until 2016, is now saddled with overcapacity, with its 2018 China sales falling short of target and reaching only half of its total production capacity.
Hyundai reported a net loss of 129.8bn won ($114.95mn) for the fourth quarter ended in December compared with the average 784bn profit estimate of analysts based on I/B/E/S Refinitiv data.
It was the automaker’s first net loss since it changed the accounting method in 2011.
And though sales climbed 5% to 25.67tn won in the quarter, operating profit fell 35% to 501bn won.
It was also the sixth consecutive annual net profit fall for Hyundai, which with Kia is the world’s No 5 automaker.
Hyundai blamed weakness in emerging market currencies and rising investments as well as one-off costs such as corporate taxes for the weak results, but expects profitability to improve this year driven by new models.
It is not the only automaker suffering from a slowdown in China, the world’s biggest auto market.
Hyundai’s China sales tumbled 23% in the fourth quarter, lagging the wider market.
For the whole year, Hyundai sold 790,000 vehicles in China — lower than its target of 900,000 and almost flat from its six-year-low of 785,000 in 2017 when Seoul’s diplomatic row with Beijing hurt consumer sentiment about Korean products.
Hyundai’s total capacity is 1.65mn vehicles in China.
Its Chinese joint venture may have swung to a loss in the fourth quarter from a year earlier, said Esther Yim, an analyst at Samsung Securities.
“Hyundai earnings will recover this year after bottoming out.
But the question is the strength of the recovery, which is expected to be weak,” she said.
“I expect earnings to miss market forecasts again this year as falling demand and rising competition makes it difficult for Hyundai to pass along higher costs of new vehicles to customers.”
The automaker plans to boost exports from its Chinese factories, vice president Zayong Koo told a conference call.
It also aims to expand China sales by 9% this year by launching models such as the redesigned Sonata sedan and ix25 SUV in China.
Hyundai also plans to increase the number of its new energy models available in China to five in 2019 from the current two, Koo said.
Last year, Hyundai’s longtime China vice chairman Hsueh Yung-hsing resigned as part of a sweeping executive reshuffle under heir apparent Euisun Chung.
“China demand is expected to be down 5% this year, and I don’t see a reason why Hyundai would improve sales and outperform the market this year,” said Angela Hong, an analyst at Nomura.
Hyundai’s US sales slipped 1% last year, versus the market’s 0.2% fall, with the automaker’s redesigned Santa Fe SUV failing to live up to its expectations.
The automaker is also bracing for potential US tariffs on vehicle imports and a US investigation over how it handled a recall over engine defects.
Hyundai and Kia aim for a 3% sales growth this year — another tepid rise after they missed their sales goal for a fourth consecutive year last year.
Ford Motor Co on Wednesday posted a lower operating fourth-quarter profit as losses in every global region except North America weighed on results.
The No 2 US automaker, which has announced an alliance with Germany’s Volkswagen AG, is restructuring operations globally.
It is making cuts in Europe, looking to reorganise its South American operations and turn around China — all unprofitable regions.
“It was not a year we were happy with and the fourth quarter continued that theme,” chief financial officer Bob Shanks told reporters at the company’s headquarters outside Detroit.
He acknowledged the potential this year for disruptions such as strikes in regions where it is restructuring.
In 2018, Ford took a $3.3bn combined hit from higher tariffs and commodity costs, unfavorable foreign exchange and recalls related to former airbag maker Takata.
Last week, Ford provided a cloudier 2019 outlook because of tariff costs and uncertainty over Britain’s exit from the European Union, only saying it had the potential for higher earnings and revenue.
That was in contrast to Ford’s larger US rival, General Motors Co, which on January 11 forecast higher 2019 earnings that far surpassed analysts’ estimates.
Shanks reiterated on Wednesday that Ford’s market-leading presence in Britain gave it extensive exposure to the effects of Brexit.
Ford said on January 10 that it would cut thousands of jobs and look at plant closures in Europe as part of its plan to return to profit in the region.
Ford posted a fourth-quarter net loss of $116mn, or 3 cents a share, down from a net profit of $2.5bn, or 63 cents a share, in the same quarter in 2017, largely because of one-time pension costs and other charges.
Excluding one-time charges, it earned 30 cents a share, in line with an outlook Ford executives provided last week that was shy of Wall Street’s expectations.
In North America, Ford posted a pre-tax profit of $2bn.
It saw losses in every other region, with Asia reporting the largest loss of $381mn, driven by plummeting sales in China.
On January 15, Ford and VW said they would join forces on commercial vehicles and were exploring joint development of electric and self-driving technology.
On Wednesday, sources said that Germany’s automakers, including VW, were in talks to jointly develop autonomous cars.
VW reiterated it was still looking for new partners, while Shanks said the companies were still in talks.
Ford, which ended 2018 with $23.1bn in cash, previously said it remained committed to its operations in Europe and South America, and its losses in China would narrow this year.
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