Softer demand projected to drag down AAL, LUV Q2 earnings

American Airlines (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV) are set to report Q2 results on July 24, with analysts projecting a year-over-year earnings decline due to softer passenger revenues weighing on overall performance.

American Airlines’ EPS is expected to decline 29.4% year-on-year to $0.77, while revenue is likely to drop 0.1% to $14.29B, compared to the year-ago quarter.

On the other hand, the consensus EPS estimate for Southwest Airlines is $0.51, which translates to a 12.1% YY fall. Revenue is seen edging down 0.7% YY to $7.3B.

The decline is primarily driven by weaker demand and pricing in core passenger operations, which account for the majority of each airline’s revenue, as per S&P Global Market Intelligence.

American Airlines’ passenger revenue is projected to dip 0.7% year-over-year to $13.1B, while Southwest Airlines is expected to see a 1.4% decrease to $6.6B, the research firm said.

Although both carriers are expected to report sequential revenue growth in Q2, driven by a seasonal rise in summer travel, the rebound may fall short of countering broader headwinds, it added.

Economic uncertainty and reduced corporate and consumer spending have weighed on travel demand compared to the same period last year.

However, despite the slowdown, Delta Air Lines’ (DAL) bullish Q2 print and upbeat outlook lifted travel stocks earlier this month. The company posted a double beat, sending its shares to a 4-month high.

Over the past two years, American Airlines has exceeded EPS estimates 88% of the time and revenue estimates 75% of the time. In the same period, Southwest Airlines has surpassed both EPS and revenue estimates 63% of the time.

Over the past three months, the former has seen 2 upward and 9 downward revisions to its EPS estimates, while revenue estimates have been revised upward 3 times and downward 10 times. For the latter, EPS estimates have had 1 upward and 10 downward revisions, with revenue estimates facing 13 downward revisions and no upward.

Both carriers have had contrasting runs in the stock market in the year so far. While LUV shares have taken off by 12.37%, AAL has plunged by nearly 28%.