American Airlines (AAL) Expects High Q3 Costs Post Pilot Deal
American Airlines AAL expects labor costs to increase following the four-year pay-related deal inked with pilots earlier this week. This rise is likely to get reflected in the bottom-line results of the third quarter.
The approval of the deal, which is valued at $9.6 billion over its tenure, makes AAL’s pilots eligible for an immediate pay raise in excess of 21%, on average, as it includes roughly $1.1 billion in immediate, one-time payments and ratification bonuses. The deal also has provisions for retroactive pay for the first four months of 2023. This implies that $230 million will get reflected as additional expenses in the September-quarter results.
Including the expenditures associated with the deal, American Airlines now expects third-quarter cost per available seat mile excluding fuel and net special items or CASM-ex to rise in the 4-6% band on a year-over-year basis (prior guidance: 2-4% year-over-year jump).
However, full-year 2023 guidance for the metric (even after including the pilot-deal related costs) remains the same due to changes in the projected timing of other expense items. Evidently, CASM-ex for 2023 is still forecast to climb in the range of 2-4%.
Zacks Rank & Key Picks
American Airlines currently carries a Zacks Rank #3 (Hold).
Investors interested in the Zacks Transportation sector may consider stocks like United Airlines UAL and Air Transport Services ATSG. Each stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
United Airlines is seeing steady recovery in domestic and international air-travel demand. Owing to this, UAL suggests revenues for the September quarter to grow 10-13% year over year. Our projection for the metric hints at an increase of 11.4% year over year.
For third-quarter 2023, United Airlines anticipates capacity to improve 16% from the year-ago reported figure. The Zacks Consensus Estimate for UAL’s current-year earnings has been revised 19.7% upward over the past 60 days.
The uptrend with respect to e-commerce even in the post-pandemic scenario is a huge positive for Air Transport Services. It is the primary driver behind the uptick in demand for midsize air freighters.
With shippers replacing their older, less fuel-efficient equipment, ATSG’s freighters have emerged as suitable replacements. Driven by the upbeat demand, ATSG has delivered a record six converted freighters under lease in a month to its customers worldwide. The Zacks Consensus Estimate for ATSG’s current-year earnings has been revised 11.2% north in the past 60 days.
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