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American Airlines (AAL) Stock Slips Post Q2 Earnings Miss

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American Airlines’ AAL second-quarter 2022 earnings (excluding 8 cents from non-recurring items) of 76 cents per share fell short of the Zacks Consensus Estimate of 79 cents. Escalated operating expenses induced the earnings miss. Consequently, shares declined in early trading. In the year-ago quarter, AAL incurred a loss of $1.69 per share when air-travel demand was not as buoyant as in the current scenario. The second quarter of 2022 was the first profitable quarter, excluding net special items, at AAL since the onset of the pandemic.

Operating revenues of $13,422 million skyrocketed 79.5% year over year and also surpassed the Zacks Consensus Estimate of $13,409.8 million. This massive year-over-year jump reflects upbeat air-travel demand. Buoyant air-travel demand is also reflected by the fact that total operating revenues increased 12.2% from the second-quarter 2019 (pre-coronavirus) levels despite operating at an 8.5% lower capacity.

In the June quarter, passenger revenues, which accounted for the bulk of the top line (91.1%), increased to $12,223 million from a mere $6,545 million a year ago, driven by strong summer-travel demand, mainly on the domestic front. Cargo revenues inched up 0.5% to $328 million, driven by the carrier’s focus on its cargo unit in the coronavirus era. Cargo yield per ton mile rose 11.4% in the second quarter of 2022. Other revenues climbed 43.5%.

Total revenue per available seat miles (a key measure of unit revenue: TRASM) increased to 20.29 cents from 13.71 cents a year ago. Passenger revenue per available seat miles (PRASM) surged 54% to 18.47 cents, driven by buoyant air-travel demand. Consolidated yield increased 36.4%.

Reflecting the uptick in air-travel demand, consolidated traffic (measured in revenue passenger miles) rose to 57.516 million from 42,022 million a year ago. To cater to this buoyant demand, capacity (measured in average seat miles) expanded to 66,163 million from 54,555 million. Consolidated load factor (percentage of seats filled by passengers) increased 9.9 percentage points to 86.9%.

Total operating costs (on a reported basis) surged 76.3% year over year to $12,405 million with aircraft fuel expenses and related taxes skyrocketing to $4,020 million from $1,611 million a year ago. Average fuel price per gallon (including related taxes) climbed to $4.03 from $1.91 a year ago. Consolidated operating costs per available seat mile (CASM: excluding fuel and special items) inched up 0.5% to 12.68 cents. Fuel gallon consumption increased 18.1% to $997 million in second-quarter 2022. American Airlines, currently carrying a Zacks Rank #3 (Hold), exited the quarter with $15.6 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 as evidenced by the healthy scenario with respect to bookings, management expects AAL to report profit in the September quarter too. The top-line guidance is naturally very bullish. Total revenues in the third quarter of 2022 are anticipated to be roughly 10-12% higher than the level recorded in third-quarter 2019. Management expects TRASM to be 20-24% higher than the third-quarter 2019 actuals.

American Airlines expects system capacity for the September quarter to decline in the 8-10% range from the figure reported in third-quarter 2019. Fuel cost per gallon in third-quarter 2022 is expected in the $3.73-$3.78 band. Fuel gallon consumption is expected to be $1,040 million. CASM excluding fuel and special items is expected to increase in the 12-14% range in the third quarter of 2022 from the number reported in third-quarter 2019.

Effective tax rate is anticipated to be 22%. Pre-tax margin (excluding net special items) is expected in the 2-4% range in the September quarter. Basic and diluted weighted average shares outstanding are likely to be approximately 650.6 million and 721.7 million, respectively, in the September quarter.

American Airlines expects 2022 capacity to decline 7.5-9.5% from the 2019 levels. CASM, excluding fuel and special items, is expected to increase between 10% and 12% from the 2019 actuals. AAL expects capex in 2022 and 2023 to be $2.6 billion and $2.7 billion, respectively. 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 second-quarter 2022 results of American Airlines’ rivals Delta Air Lines DAL and United Airlines UAL.

Delta’s second-quarter 2022 earnings (excluding 29 cents from non-recurring items) of $1.44 per share lagged the Zacks Consensus Estimate of $1.71. Escalated operating expenses caused this earnings miss. Multiple flight cancellations in May and June also hurt results. In the year-ago quarter, DAL incurred a loss of $1.07 per share when air-travel demand was not as buoyant as at present.

Delta’s revenues came in at $13,824 million, beating the Zacks Consensus Estimate of $13,608.9 million and soaring 94% from the year-ago quarter’s figure as air-travel demand rebounded from the pandemic slumps.

United Airlines’ second-quarter 2022 earnings (excluding 43 cents from non-recurring items) of $1.443 per share fell short of the Zacks Consensus Estimate of $1.86. Escalated operating expenses induced the earnings miss. In the year-ago quarter, UAL incurred a loss of $3.91 per share when air-travel demand was not as buoyant as in the current scenario. The second quarter of 2022 was the first profitable quarter at UAL since the onset of the pandemic.

Operating revenues of $12,112 million beat the Zacks Consensus Estimate of $12,033.7 million. Revenues increased more than 100% year over year owing to upbeat air-travel demand. The optimistic air-travel demand scenario is also evident from the fact that total operating revenues increased 6.2% from the second-quarter 2019 (pre-coronavirus) levels.


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