American Airlines Delivers First Profit Since the Start of the Pandemic

Ticker Symbol: AAL

American Airlines, the largest U.S. airline company, reported second-quarter results this morning that largely met consensus estimates. Airlines were one of the hardest hit industries during the COVID pandemic, with global lockdowns and quarantine having a significant impact on revenue and profitability. Most flights were grounded during the initial months of the virus spreading, and almost all airliners had to take government bailouts to remain going concerns.

The company reported adjusted earnings per share of 76 cents, meeting forecasts. Operating revenue, however, delivered a solid beat, up 79% year over year to $13.42 billion, ahead of the estimated $13.2 billion. Passenger revenue increased 87% over the same period in 2021 to $12.22 billion versus the $11.95 billion expected by analysts. Load factor, which measures the capacity utilization of airliners, improved to 86.9% from 77% a year ago, and the 82.4% expected.

Passenger revenue per available seat mile, or PRASM, the amount of revenue earned per available miles flown by all the airline’s aircraft multiplied by the number of seats in those aircraft, came in at 18.47¢. While this figure represented a sharp jump from 2021, costs at airlines have also increased dramatically. Fuel costs, generally the second largest expense for airline companies, have more than doubled in the past year with jet fuel now costing an average of $3.89 per gallon versus $1.75 per gallon in the second quarter of 2021.

Furthermore, airline companies are having to limit flying in the third quarter as the industry grapples with surging costs and economic uncertainty. Management highlighted that capacity would be down 10% in the third quarter and 9.5% for the year from pre-pandemic levels. Additionally, Chief Executive Officer Robert Isom said that non-fuel expenses would be up 14% during the current quarter and 12% for the year compared to 2019.

Airliners are struggling with finding adequately trained pilots and have had to increase pay significantly in recent negotiations with pilot unions. This shortage of pilots, combined with factors such as air traffic congestion, has led to a rash of flight delays and cancellations. Reducing capacity would help with reliability and could improve customer satisfaction. Moreover, cancellations and delays result in having to compensate passengers for the inconvenience, adding another layer of costs and inefficiency to the company.

American did say that despite all the challenges, the company expects its third-quarter total revenue to be up between 10 to 12 percent versus the third quarter of 2019. It also expects to pay down $15 billion in total debt by the end of 2025 and should remain profitable in the near term. Demand, especially for domestic leisure travel, also remains robust and surpassed 2019 levels during the quarter. Shares are down 9% in mid-morning trading, and off by 22% for the year.

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