American Airlines Group Inc.’s lackluster forecast for this quarter tempered investor enthusiasm over a boom in air travel that lifted US carriers earlier this year.
(Bloomberg) — American Airlines Group Inc.’s lackluster forecast for this quarter tempered investor enthusiasm over a boom in air travel that lifted US carriers earlier this year.
On Thursday, the company projected unit revenue to fall as much as 6.5% this quarter. That trailed analyst estimates for a drop of 3.5% and is “likely to fuel further investor concerns on the domestic market,” Savanthi Syth, a Raymond James Financial analyst, said in a note.
Meanwhile, adjusted earnings will be 85 to 95 cents a share in the third quarter, American said in a statement that also outlined second-quarter results. Analysts were expecting 90 cents on average, according to estimates compiled by Bloomberg.
The mixed outlook offered a reality check after strong reports from rivals United Airlines Holdings Inc. and Delta Air Lines Inc. United late Wednesday projected third-quarter and full-year earnings that handily beat estimates.
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Large US carriers are capitalizing on a rebound in global travel, particularly to Europe, as remaining pandemic-related restrictions ended and growth in domestic demand moderated. Travel this summer is expected to surpass record levels of 2019, but corporate demand remains soft.
“We see really nice demand for us domestically,” Chief Financial Officer Devon May said in an interview, adding that it’s been difficult to forecast revenue all year. The US market “has been really strong and robust over the long term.”
American’s shares fell 5.9% at 10:46 a.m. in New York, the largest intraday drop since April 12. The stock climbed 46% this year through Wednesday, the second-best performer in a Standard & Poor’s index of the five largest US carriers.
Investors were lukewarm on the American report despite a boost to the full-year outlook and second-quarter results that beat estimates. Adjusted earnings will be $3 to $3.75 in 2023, it said in a filing, compared with earlier guidance for no more than $3.50. The carrier was expected to earn $3.04 on average by analysts.
Earnings in the past quarter were $1.92 a share, topping the $1.59 average of analysts’ estimates. Operating revenue also surpassed expectations.
American is grappling with uncertainty around a pending pilot contract, agreeing to reopen talks after United reached an agreement in principle with its aviators for a more lucrative deal. The carrier plans to match the United pay rates, American Chief Executive Officer Robert Isom said Thursday on the earnings conference call, but it’s unclear if discussions will be wrapped up in time to allow voting on a deal to begin as scheduled on July 24.
The pending American agreement would boost costs by about $8 billion over four years, while the United plan is valued at around $10 billion over the same period.
The carrier is “not anticipating any earnings impact” from the dismantling of its operating alliance in the US northeast with JetBlue Airways Corp. after a federal judge found it violated antitrust laws, Isom said. It’s too early to say what will happen with flying slots at congested LaGuardia Airport in New York that are held by American but used by JetBlue as part of the partnership, American said.
(Updates with analyst comment in second paragraph, CFO comment in sixth paragraph.)
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