1 Airline That Soared in October -- and 2 That Didn't

October was a meh month for most U.S. airlines, especially the "Big 4," which control 84% of domestic air travel. Their share prices generally finished the month within 4 percentage points of where they began -- although a disappointing earnings report by United Continental Holdings (NYSE: UAL) turned what had been a very good month into a modest loss.

But some of the smaller carriers did see big shifts in their fortunes during October. Alaska Air Group (NYSE: ALK), Hawaiian Holdings (NASDAQ: HA), and Spirit Airlines (NASDAQ: SAVE) all saw double-digit changes in their stock prices over the course of the month. Let's look at who the big winner was and who the big losers were, and why.

A chilly reception for Alaska Air

Seattle-based Alaska Air Group owns and operates jets under the Alaska Air and Horizon lines, and also recently purchased Virgin Atlantic to become the fifth-largest U.S. airline. It was also the industry's biggest loser in October, with a share price that dropped 13.4% for the month. Pretty much that entire drop occurred on the day the company reported third-quarter earnings.

Actual earnings of $2.24 per share weren't all that bad, coming in just a penny below analysts' consensus estimate of $2.25 per share. Revenue, unfortunately, missed expectations by about $50 million. CEO Brad Tilden put it succinctly on the earnings call: "We're actually good at managing revenues, but we have been a little bit focused on the merger."

Yes, it's that Virgin Atlantic merger that has investors concerned. Ever since it closed in late 2016, Alaska Air's operating margins -- which had climbed above 24% -- have been on the decline, and now sit below 18%. That's still among the best in the industry (compare it to poor United Continental's dismal 10.1%), but it's not exactly what investors signed on for.

Some of Tilden's other comments on the call about problems with canceled flights at Horizon and "a lot of anxiety around here ... a lot of tough conversations" around the merger further spooked investors. If Alaska Air's stock is to have any hope of recovery, the company is going to have to successfully digest Virgin Atlantic... and the sooner, the better.

Hawaiian Holdings punched

From one extreme to the other, we head from Alaska to Hawaii. Hawaiian Holdings, which owns and operates leisure carrier Hawaiian Air, also reported earnings in October. Those earnings, though, were much better than Alaska Air's. Revenue increased, both on an absolute basis (up 7.1%) and per available seat mile (up 5.8%). The company's adjusted pre-tax margins remained strong at 22.8%. The company even instituted a quarterly dividend.

In spite of all that, the stock tanked after the company's earnings announcement, to finish the month down 10.8%.

The big reason: competition. Since Aloha Airlines went out of business in 2008, Hawaiian Air has had very little in the way of competitive threats, but that's about to change. Southwest Airlines has announced it's opening West Coast-to-Hawaii routes, and United Continental is also planning to increase service to Hawaii on 11 routes this December, claiming it will offer more flights to Hawaii than Hawaiian Air.

This could cause huge headaches for Hawaiian, but not necessarily. The company will still have a dominant share of interisland travel and other competitive advantages over its larger rivals. Still, Hawaiian will have to work to maintain its market share, so investors are right to be wary.

Spirit flies high

While Alaska Air and Hawaiian Holdings got pummeled in October, discount carrier Spirit Airlines' stock soared 11% for the month. Like the others, it was the company's Q3 earnings report that caused the big change.

Spirit's situation, though, is almost the polar opposite of Hawaiian's. While Hawaiian reported decent earnings and got pummeled for what investors expect to happen down the road, Spirit reported pretty dreadful numbers, but was rewarded by the stock market anyway based on expectations.

The hurricane season had an outsize impact on Spirit's third quarter. The company had to cancel about 1,650 flights, which lost it about $40 million in revenue during the quarter. That led to a 24.1% year-over-year drop in net income and a 24.2% year-over-year drop in earnings per share. But while that was bad, it wasn't quite as bad as the market was predicting, which caused the share price to jump. Investors were also likely cheered by projected price stabilization, continuing declines in nonfuel costs, and an increase in per-passenger non-ticket revenue.

If Spirit Airlines can keep lowering its costs while holding fares steady -- and if Mother Nature cooperates -- the budget carrier may be able to turn itself around.

Investor takeaway

Airlines can be rough investments: It's an industry with a lot of competition, little brand loyalty, and many pricing pressures. All three of these airline stocks have lost money for their investors over the past year. They're also in precarious spots right now. If Alaskan can successfully digest Virgin Atlantic, and if Hawaiian can leverage its competitive advantages and if Spirit can make the most of its discount fare model, all three of these companies could be winners over the long term.

But, as October showed, sometimes there's no way to know which way things will go in a tough industry.

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John Bromels has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Spirit Airlines. The Motley Fool has a disclosure policy.