What To Expect From American Airlines’ Q1 Earnings

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Trefis
AAL: American Airlines logo
AAL
American Airlines

American Airlines (NASDAQ:AAL) reported a pretty decent earnings last time around. The company managed to beat the earnings and revenue estimates by a comfortable margin. That said, the airline witnessed its stock price plummet post the call on rising concerns over profitability. The airline posted profits in the amount of $258 million in the quarter, which was down by a significant 10.9% year over year. The fall was primarily the product of heavy increases in costs which came in notably higher at about 7% in the quarter. That said, the company is optimistic about its growth prospects in 2018.

The company’s stock price has remained quite volatile through most of the year thus far. However, we believe that the price has much room to grow. In this respect, we have created an interactive dashboard to help us explain our reasoning behind this. Please click on the link to make changes to the key drivers and arrive at your own price estimate.

  • In the previous quarter, the company managed to increase its RASM figure by almost 5.6% year over year, which was well ahead of management’s initial forecast. That said, we expect there to be a drop in momentum going forward. For Q1 2018, the company expects to increase RASM at around 2-4% year over year.
  • As mentioned in the previous quarter, American will continue to raise capacity in 2018. This news didn’t go down well with investors that believe the trend of raising capacity across the industry will lead to pricing wars that could massively affect profits. While the company has assured that the rise in capacity will be maintained in the most efficient manner, margins in the upcoming quarter will shed more light on this.
  • For Q1, it forecasts fuel prices to jump to almost $2.07-$2.12 a gallon, up from around $1.70 per gallon in the same period last year. Non-fuel costs are also expected to increase, albeit, at a diminishing rate. The net result is that the company forecasts its pre-tax margin will be around 2-4%, in comparison to 6.7% in Q1 2017.
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