American Airlines Q3’16 Earnings Preview: Reduction In Capacity To Partially Offset Lower Unit Revenues

+6.51%
Upside
15.30
Market
16.30
Trefis
AAL: American Airlines logo
AAL
American Airlines

17102

Key Trends:

  • American revised its PRASM guidance from a decline of 3%-5% to 2%-3%, implying a small improvement, likely due to the reduction in capacity over the past quarter. The expected drop in passenger unit revenue is far lower than the other players in the industry, which is big plus for the company, which has been suffering from low revenues for consecutive quarters.
  • The company’s system-wide capacity should come in the range of its guidance of approximately 2%. However, the decline in its occupancy factor to 81.6% indicates that the carrier is still unable to fully utilize its existing capacity. Further, the moderation in capacity will support the airline’s bottom line, partially offsetting the negative impact of higher fuel cost and operating expenses excluding fuel.
  • We have recently seen some recovery in oil prices, owing to the OPEC countries’ decision to restrict their combined oil output between 32.5 and 33 million barrels per day, a potential reduction of 200 to 700 MBPD (thousand barrels per day) compared to the output in August. However, the increase is unlikely to have any material impact on the fuel expenditure of the airline in this quarter, as the prices continue to be much lower than the historical $100 per barrel. Looking ahead, we can expect the fuel bill at American Airlines to grow substantially, as it follows a non-hedging policy.
  • American’s management expects its pre-tax margin for the third quarter to be slightly higher than the previous guidance of 12%-14%. However, this will be partially offset by the company’s non-fuel operating expenses, which are expected to be on the higher end of the guidance range.

Have more questions about American Airlines (NYSE:AAL)? See the following links:

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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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