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American Airlines (AAL) Q3 Earnings Top, Air Travel Surges

American Airlines’ AAL third-quarter 2022 earnings of 69 cents per share surpassed the Zacks Consensus Estimate of 54 cents despite higher costs. In the year-ago quarter, AAL incurred a loss of 99 cents per share when air-travel demand was not as bullish as in the present scenario. The third quarter of 2022 was the second consecutive profitable quarter, excluding net special items, at AAL since the onset of the pandemic.

Operating revenues of $13,462 million skyrocketed 50.1% year over year and surpassed the Zacks Consensus Estimate of $13,457.5 million. This year-over-year jump reflects upbeat air-travel demand. Buoyant air-travel demand is also reflected by the total operating revenue increase of 13% from the third-quarter 2019 (pre-coronavirus) levels despite operating at 9.6% lower capacity.

In the September quarter, passenger revenues, accounting for the bulk of the top line (92.1%), increased to $12,396 million from $7,957 million a year ago, driven by strong air-travel demand, mainly on the domestic front. Cargo revenues decreased 15.9% to $279 million. Other revenues climbed 15.8%.

Total revenue per available seat miles (a key measure of unit revenue: TRASM) increased to 19.63 cents from 14.68 cents a year ago. Passenger revenue per available seat miles (PRASM) surged 38.8% to 18.08 cents, driven by buoyant air-travel demand. Consolidated yield increased 28%.

Reflecting the uptick in air-travel demand, consolidated traffic (measured in revenue passenger miles) rose to 58,499 million from 48,069 million a year ago. To cater to this buoyant demand, capacity (measured in average seat miles) expanded to 68,567 million from 61,111 million. Consolidated load factor (percentage of seats filled by passengers) increased 6.6 percentage points to 85.3%. Our estimate for third-quarter 2022 load factor is pegged at 86.5%.

Total operating costs (on a reported basis) surged 49.7% year over year to $12,532 million with aircraft fuel expenses and related taxes skyrocketing to $3,847 million from $1,952 million a year ago. Average fuel price per gallon (including related taxes) climbed to $3.73 from $2.07 a year ago. Consolidated operating costs per available seat mile (CASM: excluding fuel and special items) inched up 3% to 12.61 cents. Fuel gallon consumption increased 9.5% to $1,031 million in third-quarter 2022. American Airlines, currently carrying a Zacks Rank #3 (Hold), exited the quarter with $14.3 billion of total available liquidity.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Outlook

Driven by soaring demand on healthy bookings, management expects total revenues in the fourth quarter of 2022 to be roughly 11-13% higher than the level recorded in fourth-quarter 2019. Management expects TRASM to be 18-20% higher than the fourth-quarter 2019 actuals.

American Airlines expects system capacity for the December quarter to decline in the 5-7% range from the figure reported in fourth-quarter 2019. Fuel cost per gallon in fourth-quarter 2022 is expected in the $3.51-$3.56 band. Fuel gallon consumption is expected to be $990 million. AAL expects its total non-operating expense to be approximately $335 million in the December quarter.

CASM, excluding fuel and special items, is expected to increase in the 8-10% range in the fourth quarter of 2022 from the number reported in fourth-quarter 2019. AAL expects the December-quarter earnings per share (excluding net special items) in the 50-70 cents band. The Zacks Consensus Estimate is currently pegged at 18 cents.

Effective tax rate is anticipated to be 20%. Operating margin (excluding net special items) is expected in the 5.5-7.5% range in the December quarter. in the December quarter.

American Airlines expects 2022 capacity to decline 8-10% from the 2019 levels. CASM, excluding fuel and special items, is expected to increase between 11% and 13% from the 2019 actuals. AAL still anticipates paying down approximately $15 billion of total debt by the end of 2025.

A Peek Into Other Notable Airline Results

Let’s look at the third-quarter 2022 results of American Airlines’ rivals, such as Delta Air Lines DAL and United Airlines UAL.

Delta's earnings (excluding 42 cents from non-recurring items) of $1.51 per share fell short of the Zacks Consensus Estimate of $1.56. Escalated operating expenses induced the earnings miss. Multiple flight cancellations and booking weakness due to Hurricane Ian also hurt results. Delta reported revenues of $13,975 million, which lagged the Zacks Consensus Estimate of $14,157.2 million. Driven by high air-travel demand, total revenues increased more than 52% on a year-over-year basis.

United Airlines’ third-quarter 2022 earnings (excluding 5 cents from non-recurring items) of $2.81 per share beat the Zacks Consensus Estimate of $2.21.

Upbeat air-travel demand aided results. In the year-ago quarter, UAL incurred a loss of $1.02 per share when air-travel demand was not as buoyant as in the current scenario.

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