American Q2’16 Earnings Preview: Rising Oil Prices, Lower Unit Revenues To Weigh Heavily
Key Trends:
- American’s decision to revise its capacity guidance earlier in the year will likely help the airline to manage costs, in the face of rising oil prices, and partially offset the effect of declining unit revenues.
- PRASM is expected to continue its downward trajectory, dragging down the top line.
- The oil prices have risen almost 37% since the start of the year due to a range of factors, such as production cuts in the U.S., geopolitical disturbances in Venezuala and Nigeria, and a wild-fire in Alberta, Canada. Moreover, American follows a policy of not hedging its fuel consumption. The two factors may result in American’s exceeding its fuel price guidance, which is likely to severely hit its operating margins.
- Unit cost growth, excluding fuel, is expected to be higher than previous quarters at 4% to 6%, as a result of increased personnel costs due to its integration with US Airways during 2015.
- American recently made changes to its AAdvantage loyalty program, shifting to award miles based on the price of a ticket. This is expected to help them attract more traffic.
- The new $2 billion share repurchase program may help the legacy carrier offset the impact of higher costs, fuel and non-fuel, on its EPS.
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Have more questions about American Airlines (NYSE:AAL)? See the following links:
- Here’s Why We Revised American Airlines’ Price Estimate To $46 Per Share
- American Airlines’ 1Q’16 Revenue And Earnings Decline; Investors Penalize Airline For Downward Revision Of 2016 Capacity Growth Target
- US Legacy Carriers: A Comparison Of Aircraft Fleet
- How Important Will American’s International Operations Be In 2020?
- How Will American Airlines’ Equity Value Move, If Crude Oil Prices Rebound To $100 Per Barrel By 2018?
- Why Are American Airlines’ Domestic Operations More Valuable Than Its International Operations?
- How Will American Airlines’ Equity Value Move, If Crude Oil Prices Average $50 Per Barrel In 2018?
- How Did American Airlines’ Revenue And EBITDA Grow Over The Last Five Years?
- How Did American Airlines Use Its Increased Cash Flows In 2015?
- How Will American Airlines’ Revenue And EBITDA Grow Over The Next Five Years?
- What Is American Airlines’ Fundamental Value Based On 2016 Estimated Numbers?
- How Has The Oil Slump Impacted American Airlines’ Operating Margins?
- How Has American Airlines’ Revenue And EBITDA Composition Changes Over The Last Five Years?
- What Is American Airlines’ Revenue And EBITDA Breakdown?
- US Airlines: A Comparison Of Operating Margins
- US Airlines: A Comparison Of Dividend Yields
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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