American Airlines’ 1Q’16 Revenue And Earnings Decline; Investors Penalize Airline For Downward Revision Of 2016 Capacity Growth Target
American Airlines (NASDAQ:AAL), the world’s largest airline by capacity, posted a decline in its revenue as well as earnings per share for the March quarter 2016. The Fort Worth-based airline experienced a drop in its 1Q’16 revenue due to the sharp decline in its unit revenue (PRASM) driven by foreign currency headwinds and higher competition. The airline’s earnings fell, despite significant fuel cost savings, largely because it started recognizing a provision for income tax that was not carried out in the earlier quarters’ provision. However, this provision is a non-cash item since it is likely to be set off against non-operating losses (NOLs) accumulated by the airline in the past.
Further, due to the rising competition, American Airlines has revised its capacity growth target for full year 2016 from 6% to 2.5% on a year-on-year basis. This disappointed the investors, who were expecting the airline to record higher capacity growth, in line with its expanding flight operations and younger aircraft fleet. As a result, the airline’s stock price fell almost 4.5% on 22nd April 2016, Friday, when the airline released its first quarter results.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for American Airlines
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