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American Airlines Rose ~6% after Its Q4 Earnings

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American Airlines’ earnings

On January 24, American Airlines (AAL) shares were trading ~6% higher in the pre-market trading session. The company reported better-than-expected fourth-quarter bottom-line results. American Airlines’ top and bottom-line results increased significantly on a YoY (year-over-year) basis.

American Airlines’ fourth-quarter adjusted EPS of $1.04 was three cents higher than analysts’ estimate of $1.01. The adjusted EPS increased 11.8% YoY. Decent revenue growth, the lower tax rate, and reduced outstanding shares mainly drove American Airlines’ fourth-quarter earnings. The growth was partially offset by higher operating expenses.

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American Airlines’ fourth-quarter revenues increased 3.1% YoY to $10.94 billion—almost in line with analysts’ expectations of $10.95 billion. Strong travel demand, higher cargo revenues, and higher unit revenues drove the company’s fourth-quarter revenues higher. American Airlines’ unit revenues for the quarter rose 1.4% to 14.59 cents due to a 2.4% increase in the passenger revenue yield.

The airline’s operating expenses increased 4.2% YoY to $10.4 billion due to higher jet fuel costs. The consolidated fuel expenses rose 19.6%. The fourth-quarter jet fuel cost per gallon was $2.23—17.2% higher than $1.90 in the fourth quarter of 2017. As a result, the CASM (cost per available seat mile) grew 2.7% YoY to 15.21 cents. However, excluding fuel expenses, the CASM fell 0.2% YoY to 11.32 cents.

Due to higher costs, the adjusted pre-tax income for the quarter declined 12.2% YoY to $634 million. The adjusted pre-tax margin contracted by 100 basis points to 5.8%.

American Airlines’ fiscal revenues increased 4.5% YoY to $44.54 billion and met analysts’ estimates. However, the adjusted EPS declined 13.7% YoY to $4.55. In 2018, the adjusted EPS surpassed analysts’ estimate of $4.51.

During the year, American Airlines returned $986 million to its shareholders in the form of dividends and share repurchases. The company declared a dividend per shares of $0.10. The dividend is payable on February 20 to shareholders on record as of February 6.

Major US air carriers (IYT) Delta Air Lines (DAL), United Airlines (UAL), and Southwest Airlines (LUV) reported a 35.4%, 72%, and 52% increase in their respective fourth-quarter adjusted EPS.

First-quarter outlook

For the first quarter of 2019, American Airlines expects its unit revenues to improve in the range of flat to 2%. The pre-tax margin is expected to be between 2.5% and 4.5%. Based on these assumptions, the airline expects its earnings for fiscal 2019 to be $5.50–$7.50.

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