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American Airlines (NYSE: AAL), Southwest Airlines (NYSE: LUV) and Alaska Airlines (NYSE: ALK) are set to report third-quarter earnings this week with expectations set fairly low after a choppy summer for all three carriers. Wall Street analysts are currently expecting a fairly neutral performance from these three carriers, with demand remaining strong but pricing being relatively weak while cost shocks likely compressed margins. Investors have fairly modest expectations for American Airlines and Southwest Airlines, with Alaska Airlines being a bit more positively viewed except for its cost and fuel price-related challenges. What will likely move these stock prices is likely not flashy guidance but rather steady execution, credible holiday bookings and a believable cost and fleet management plan. If management teams show control over what they can handle and avoid any fresh surprises, there could be room for outperformance around earnings this week. Caution around fares, fuel or aircraft deliveries could lead some portfolio managers to sell off. A Deeper Look At What Exactly Is Set To Happen This Week All three of these airlines are set to drop their earnings results and discuss them over conference calls in a tight window later this week. For American Airlines, the overall lens is actually relatively simple, as management will have to answer the joint question of whether domestic pricing is steadying and costs are behaving appropriately. The airline will also have to address its strategy heading into the upcoming holiday period. Southwest Airlines is set on rebuilding its network, and it is aiming to get its schedule and aircraft flow back on track. The carrier, which has changed significantly in recent months, will have to prove it can create higher margins without overpromising. Alaska Airlines is expected to be the cleanest of the three, as investors are looking for proof that revenue trends remain firm and that costs and fleet plans are predictable enough. Across the board, investors will need to keep their eyes on reliability and on-time performance commentary, with small operational wins mattering when investors are in a cautious state. What Has Wall Street Penciled Into Expectations? The Street's setup is currently conservative by intention. Consensus estimates are deliberately low, especially for American Airlines and Southwest Airlines, lowering the bar but also raising the risk of mixed reactions, which are the most challenging for investors to predict. Analysts are expecting Alaska Airlines to remain profitable but not impress significantly. Here are some anticipated figures for the three carriers: Aside from these numbers, which show just how low expectations are for American and Southwest, analysts are looking for management rhetoric on holiday bookings, fare power, and non-fuel expenses. Aircraft deliveries, especially those of the Boeing 737 MAX family, will also be important for investors to track. From a valuation standpoint, Southwest Airlines still trades on a richer quality story, one driven by the rhetoric that activist investment management firm Elliott has created. American Airlines is looking to improve its cash flow picture while Alaska Airlines has to focus on executing its long-haul expansion. What Macroeconomic Factors Are Also Up For Consideration? There are a few macroeconomic factors that are also overshadowing this week's earnings reports. Jet fuel prices, despite easing off the worst from this summer, remain volatile, and they certainly can swing margins in either direction. Aircraft supply easing will also assist in improving overall planning and lowering costs, inviting schedule tweaks and reducing investor nerves. Consumer demand remains decent, but investors are far more worried about price sensitivity heading into the holidays, especially for these leisure travel-oriented airlines. Technological reliability, especially in the wake of today's Amazon Web Services outage, is also a big question. Beyond that are the ongoing effects of the federal government shutdown on air traffic control and capacity at major US airports. Ultimately, all of these high-level factors will likely have a stronger impact on guidance than any industry-specific factors.
