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What Influenced American Airlines’ Revenue Growth in 4Q17?

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American Airlines’ revenue in 4Q17

American Airlines (AAL) reported revenue of $10.6 billion in 4Q17, an increase of 8.3% on a YoY (year-over-year) basis. It beat analysts’ revenue estimate of $10.5 billion. Since 2013, AAL’s fourth-quarter revenues have grown at a CAGR (compound annual growth rate) of 9.5%.

Growth in AAL’s revenue was driven by higher passenger yields, led by the trans-Atlantic and Latin America region, which grew 11% and 7.9%, respectively. Total revenue per available seat mile (or TRASM) increased 5.6% over 4Q16. Mainline passengers and regional passengers grew 8% and 8%, respectively. Revenue from cargo continued to grow with revenues of $232 million compared to $194 million in 4Q16, a growth of 19.7% YOY. The other important aspect was an 8% growth in other revenues to $1.3 billion.

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Guidance

AAL’s expansion of service to new routes is expected to drive growth. It expects 1Q18 TRASM to increase 2%–4%. By the end of 2018, AAL will have 20 new Boeing (BA) 737 MAX airplanes, which could help increase available seat miles even though they will be replacing older aircraft.

Management comments

Doug Parker, chairman and CEO (chief executive officer) of American Airlines, said, “2017 was a remarkable year for American Airlines. We made enormous progress as a company as we continued to make significant investments in our team members, product and operation, and those investments are beginning to pay off. Our operation continues to deliver record-setting performance for the company, and the credit goes to our team members who are simply the best in the business. We enter 2018 with strong momentum. Demand for American’s reliable, friendly service remains strong, our network is expanding, and the products we are bringing to market are resonating with customers.”

Investors can indirectly hold AAL by investing in the iShares Transportation Average (IYT), which has invested 3.1% of its portfolio in American Airlines. The fund also provides exposure to FedEx (FDX) and Delta Air Lines (DAL) with weights of 14.8% and 3.3%, respectively, as of January 26, 2018.

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