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American Airlines (AAL) Stock Falls on Bleak Q4 Guidance

Zacks Equity Research

Shares of American Airlines Group AAL tumbled on Jan 10 following a guidance revision for the fourth quarter of 2018. Detailed results will be unveiled by the company on Jan 24. In the last trading session, the stock closed at $32.04, down 4.1% from Jan 9’s closing price.

What is even worse is that the damage was not limited to American Airlines alone. Other key sector participants like United Continental Holdings UAL and Southwest Airlines LUV also felt the heat and declined yesterday.

What Did American Airlines Say?

American Airlines announced the damaging forecast at an Investor Update. Citing lower-than-expected year-over-year improvements in the domestic market, the airline behemoth revised its outlook for fourth-quarter 2018 total revenue per available seat mile (TRASM: a key measure of unit revenues), which compares unfavorably with the previous projection. This minutely watched metric is anticipated to inch up approximately 1.5% in the final quarter of 2018, which is at the lower end of the earlier expected 1.5-3.5% range.

However, with oil prices on a downtrend, this Zacks Rank #2 (Buy) carrier cut its fourth-quarter forecast for average fuel prices per gallon. The metric (inclusive of taxes) is now assumed between $2.22 and $2.27 (past view: $2.30-$2.35). The company continues to predict non-fuel unit costs between -1% and +1% (year over year). Additionally, American Airlines still envisions fourth-quarter adjusted pre-tax income in the band of 4.5-6.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Adding to the woes, this Fort Worth, TX-based carrier trimmed its earnings per share guidance for 2018. The metric is anticipated to be between $4.40 and $4.60, which again lags its former view of $4.50-$5 per share. The Zacks Consensus Estimate for 2018 earnings is pegged at $4.57 per share.

American Airlines Group Inc. Price


American Airlines Group Inc. Price | American Airlines Group Inc. Quote

We note that American Airlines is the second major U.S. carrier to issue a downbeat TRASM outlook for the fourth quarter. Earlier in January, Delta Air Lines DAL slashed its projection with respect to unit revenues (read more: Delta Stock Plummets on Q4 Unit Revenue View Cut).

Successive bearish views provided by two airline heavyweights hint at turbulence for airline players in the final quarter of 2018. Fourth-quarter 2018 earnings season for airlines will kick off with Delta Air Lines reporting on Jan15 before market open.


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