American Airlines Q1 Earnings: Stock Slumps As Prices Rise

+6.17%
Upside
15.35
Market
16.30
Trefis
AAL: American Airlines logo
AAL
American Airlines

American Airlines (NASDAQ:AAL) reported a solid quarter in terms of earnings and revenues. Both figures surpassed the analyst estimates by a comfortable margin. Earnings came in at $0.61 a share, beating the consensus estimate by 4 cents. Revenues came in around $9,624 million, up 2% year-over-year, beating the consensus estimate marginally.  Additionally, unit revenue is positive for the second quarter in a row, achieved again by restricting capacity growth. The company expects unit revenues to remain positive all through 2017. Despite the positives though, the company’s stock price dipped by about 5% post the call on the fear of increased wages and rising fuel costs.

Screen Shot 2017-04-28 at 4.19.55 PM

Key Highlights:

  • Probably the most important news coming out of the quarter is American’s decision to increase the wages of its pilots and air attendants. The airline has agreed to increase the pay by about 5% for air attendants and 8% for pilots. The pay hike is expected to add $930 million in costs through 2019. The decision comes at a time when fuel costs are increasing rapidly and the trend is expected to remain constant in the near term.

  • Net income in the quarter came out to about $303 million, excluding certain special items. This figure represents a near 60% decline year-over-year on the back of a 37.8% or $472 million increase in consolidated fuel expenses, as mentioned previously. The company paid a hefty $1.69 per gallon towards fuel procurement in the quarter, as opposed to $1.20 in the same period last year.
  • As mentioned above, unit revenues were positive, up 2.4% year-over-year. As in the last quarter, this was achieved by severely restricting capacity measured in available seat miles (ASM), which declined by almost 1.7% this time around. Further, the company expects this strategy to realize a 3-5% growth in unit revenues in the second quarter.
  • Domestic unit revenues increased in every month of the quarter, landing an average increase of 2.4%. The increase was partially facilitated by implementing a number of revenue management initiatives in the airline’s Premium cabin. Further, the company has also benefited from targeted sales initiatives that have shown strong response across the network. This trend is expected to continue into future quarters as well.
  • Internationally, Latin America continues to be the strongest market for the company. Unit revenues in the region increased by a massive 7.7%, driven primarily by a 44% increase in PRASM (passenger revenue per available seat miles) in Brazil. The poorest international performance was witnessed in the Atlantic sector. Adverse currency headwinds and a soft pricing environment greatly affected the unit revenue here.

Relevant Articles
  1. Should You Pick American Airlines Stock At $14 After A 6% Fall In A Week?
  2. With 20% Gains This Month Is Alaska Air A Better Pick Than American Airlines Stock?
  3. Which Airlines Stock Will Offer Better Returns – American Or United?
  4. What To Expect From American Airlines’ Q2?
  5. Will American Airlines Stock Recover To Its Pre-Inflation-Shock Level?
  6. Pick Either American Airlines Stock Or Its Peer – Both May Offer Similar Returns

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research