American Airlines: What Could Affect Its Q1 Earnings

First-quarter expectations

American Airlines (AAL) is scheduled to report its first-quarter results on April 26. Heightened fuel prices and overcapacity remained a drag on the company’s profitability last year. The scenario doesn’t look very bright for the company this earnings season either.

American Airlines: What Could Affect Its Q1 Earnings

Sign up for Bagels & Stox, our witty take on the top market and investment news, straight to your inbox! Whether you’re a serious investor or just want to be informed, Bagels & Stox will be your favorite email.

Analysts expect American Airlines to report an adjusted EPS of $0.51—down 32.4% on a YoY (year-over-year) basis. For the first quarter, the EPS growth projection is in contrast to what other US airlines (IYT) have reported recently.

Delta Air Lines (DAL) and United Airlines (UAL) reported a 28% and 130% increase in their respective first-quarter earnings. Another US air carrier, Spirit Airlines (SAVE) will likely witness a 90.7% year-over-year increase in its profits.

What’s driving this pessimism?

Lower revenue growth, increased operating expenses, and higher fuel costs will likely weigh on American Airlines’ first-quarter bottom-line results. For the first quarter, analysts expect the company to report revenues of $10.6 billion—up 1.9% from the first quarter of 2018. The revenue growth estimate is much lower than the high single-digit top-line growth reported by Delta Air Lines and United Airlines.

Analysts’ dismal top-line growth projection is mainly due to massive flight cancellations during the quarter. In a regulatory filing on April 9, American Airlines revealed that 2,140 flights were canceled during the first quarter due to the partial government shutdown in January, the grounding of Boeing’s (BA) 737 Max series jets, and flight cancellations for Boeing’s 737-800 planes due to remediation and interior work.

Therefore, the company lowered its TRASM (total revenue per available seat mile) growth forecast for the quarter. The company expects the TRASM to be flat or increase to 1% compared to the earlier projection of flat to 2%.

On the cost front, the average fuel cost per gallon is expected to be $2.02–$2.07, which is higher than the previous guidance of $1.97–$2.02. The ex-fuel CASM is expected to increase 2%–4%.