American Airlines Had A Bad Air Day

American Airlines Had A Bad Air Day
Daniel Johnston

8 months ago2 mins

Mentioned in story

What’s going on here?

American Airlines’ revenue took off last quarter, but flight-phobic investors stayed grounded.

What does this mean?

After rival firms United and Delta posted strong earnings last quarter, it was American Airlines’ turn in the spotlight on Thursday. And the carrier rose to the occasion: a strong start to the peak travel season and a surge in international vacations had the cash registers ringing. And that pushed American’s revenue up by a better-than-expected 5%, hitting a record $14 billion. Plus, with jet fuel prices taking a 30% nosedive, American pocketed over $1 billion in cost savings. The upshot was that the airline didn’t just meet profit expectations – it flew past them instead.

Jet fuel prices

Why should I care?

Zooming in: Teetering trajectory.

Despite the record-breaking quarter, the reaction from investors was pretty frosty, and that’s probably down to the forecast. The airline raised its profit outlook for the year, sure, but it only just scraped by analyst expectations – partly because of a new contract set to boost pilots’ pay by over 40% in four years. And ticket prices have been on the slide lately, with June marking the third straight month of decline – and American’s forecast predicts a further dip in pricing power. That makes sense: after all, airlines now have a lot more capacity than in recent years, which is good news for travelers but bad news for profit margins.

For markets: Preparing for landing.

Airline stocks have been flying high, with summer vacation hopes pushing American, Delta, and United stocks up 38%, 50%, and 51% respectively this year. But some analysts think the rest of the year could be harsher – and the strong rally has even led some investors to adopt a bearish stance on the sector. If they’re right, airline stocks could descend from their lofty heights and come back to cruising altitude.

Source: Google Finance
Source: Google Finance
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