over 1 year ago • 3 mins
Self-assured American Airlines reported better-than-expected quarterly results on Thursday.
What does this mean?
American Airlines confidently ramped up its forecast for its third-quarter results last week, and turns out it was right to get investors excited: the airline – one of the US’s biggest – boasted that it made 13% more revenue last quarter than at the same time in 2019, before the travel-stopping pandemic hit. That’s bragging rights in itself, so it’s even more impressive that American pulled that off while flying 10% fewer flights than it did back then, making up the difference (and more) by charging customers extra for their getaways. In fairness, the airline had to do something to cover fuel costs that had nearly doubled from the year before, and labor costs that were up 12% too. But it sure had cash left over: American swaggered away with almost half a billion dollars in profit, and investors only bolstered its self-belief by sending its shares up after the news.
Why should I care?
Zooming in: Empty executive lounges.
American’s rivals United Airlines and Delta Air Lines announced robust results of their own this month, so you’d think it was all smooth, uh, flying despite the economic slowdown. But while gleeful vacationers are keeping them happy, previously high-flying – literally and professionally – corporate customers have yet to swap video conferences for their pre-pandemic norm of business class flights. That corporate spending made up about a third of airlines’ revenues – and even more of their profit – before Covid, but the Global Business Travel Association now doubts we’ll see those levels again before 2026.
Zooming out: The American nightmare.
Airlines could still be bitten by an increasingly dire economy, mind you. The Federal Reserve’s “Beige Book” – basically a summary of how the central bank sees the economy – was released earlier this week, and it signaled intensifying worries of a recession following early October’s “modest” and slowing US economic growth.
Keep reading for our next story...
Luxury giant Hermès gets that bag, reporting bumper quarterly sales on Thursday.
What does this mean?
Fashionistas the world over know there’s nothing quite like a Birkin bag, but that uber-desirable tote is just one of many offerings being snapped up in Hermès stores right now. The French haute couture fashion house was propelled to success by two key factors last quarter: one was that Covid restrictions eased in parts of China, letting affluent shoppers throng to the country’s many Hermès stores. The other was that US shoppers made use of the strong dollar to live out lavish Emily in Paris fantasies on European soil. That helped Hermès grow its total revenue – excluding the effects of currency swings – by over 24% last quarter versus the same time last year, around double what analysts expected.
Why should I care?
The bigger picture: Nice for some.
Hermès results are more evidence that luxury brands are largely immune to the spending squeeze that’s hurting other retailers. Just look at high-end rival LVMH, owner of the Louis Vuitton and Christian Dior brands: last week it announced stellar results of its own last week, with affluent consumers – less impacted by the cost-of-living crisis – still shelling out on nice-to-haves while the rest of us scrimp and save. Given that, you'd be brave to bet against Gucci-owner Kering when it posts results this week.
For you personally: It’s a rich man’s world.
It might sound hard to believe, but global financial wealth actually grew 10.6% last year – the fastest growth in more than a decade, and equal to an extra $26 trillion in wealth. That’s part of the reason we’re seeing a boom in luxury spending – and while most of us don’t have a spare $10,000 lying around to buy a fancy handbag, you could still benefit from the trend by investing in the key players. Case in point: Hermès and LVMH’s stocks have outperformed the S&P 500 by around 8% so far this year.
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