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Why American Airlines Group Inc. Stock Was Heading South Today

Jeremy Bowman, The Motley Fool

What happened

Shares of American Airlines Group Inc. (NASDAQ: AAL) were losing altitude today after the company cut its forecast for a key industry metric, saying in a filing that it expected total revenue per average seat mile, or TRASM, to increase just 1% to 3% in the current quarter, compared to previous guidance of 1.5% to 3.5%.

As a result, the stock was down 6.5% as of 12:25 p.m. EDT.

An American jet sits on an open runway.

Image source: American Airlines.

So what 

In the highly competitive airline industry, TRASM is a key performance indicator, and management said that increasing competition in the domestic market had caused prices to come down. The news was also concerning since rising fuel prices are likely to squeeze profits as the company also raised guidance on fuel spending.

Separately, the company said pre-tax income for the second quarter would take a $35 million hit due to an IT problem at regional airline PSA airlines. American also said that cost per average seat mile, or CASM, was only expected to rise 2.5% as opposed to previous guidance of 3.5%, but investors instead focused on the revenue side of the equation.

Now what 

The update weighed on airline stocks broadly as the industry tends to move together because airlines are subject to the same macroeconomic and competitive forces. Shares of American approached a two-year low on the news as the company had slashed its guidance in the first-quarter report. We'll learn more when the airline reports earnings later this month, but with rising oil prices and increasing competition, challenges are likely to persist.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.