American Airlines Posts A Weak 3Q
American Airlines (NASDAQ:AAL) reported earnings on 25th October. As effects from the rise in price of crude oil, and a lack of mitigating action on the part of management took hold, American Airlines saw profits plunge by 49%. Meanwhile, EPS came in above analysts expectations at $1.13. Since overcapacity continues to be an issue, the management has decided to defer the purchase of new aircraft, lowering capital expenditure by $1.2 billion. With RASM (revenue per average seat mile) increasing moderately at 2.2% year-on-year, American Airlines continues to face issues regarding its ability to efficiently run its operations. Higher fuel costs were the key reason for the fall in operating profits, accounting for an increase of $750 million in expenses. In addition to the higher fuel costs, Hurricane Florence had an impact of $50 million on pre-tax margins.
We currently have a price estimate of $39 per share, which is 20% higher than the market price. You can use our interactive dashboard Q3 Impact On American Airlines to modify key drivers and visualize the impact on American Airlines’ price estimate.
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In the coming quarters, the carrier will add the lowest capacity in years. While this should help efficiency issues, it will do little or nothing to turn around the structural issues the carrier faces. Of those structural issues the most critical is the large debt that the carrier holds on its balance sheet. This debt has become especially burdensome with falling margins.
Unless some real steps are taken by American Airlines to improve upon their issues, the airline’s stock will continue to underperform.
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