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American Airlines Group
Inc.
AAL 4.28%
Earnings fell 48% in the third quarter, allowing the world's leading global carrier to differentiate itself from US competitors, which increased revenues and ticket prices to stay ahead of rising fuel costs.
The carrier in Fort Worth, Texas, said Thursday that additional fuel costs of $ 750 million had hurt its business during the quarter, as well as hurricanes in the southern United States.
Managing Director Doug Parker said reducing capacity growth, reducing the number of unprofitable flights and postponing new aircraft deliveries would improve American's performance next year.
"We remain very optimistic about the future of American Airlines," Parker said.
The airline's shares gained more than 5% in pre-trade trading on Thursday, as US forecasts rose 3.5% in the fourth quarter, which pleased investors and analysts, who were expecting growth slower income.
US performance lags behind competitors
Delta Airlines
Inc.
DAL 1.18%
United Continental Holdings
Inc.
UAL 1.49%
and
Southwest Airlines
Co.
LUV -9.34%
Southwest said Thursday that its revenue grew 5.1% in the quarter. Earnings rose 16.5% to $ 615 million, or $ 1.08 per share, exceeding analysts' expectations of 2 cents per share.
Earlier this month, Delta reported earnings up 13 percent to $ 1.3 billion in the third quarter from a year earlier. United said earnings rose 30 percent to $ 836 million in the quarter.
Investors and analysts closely examined the US company's debt, profit margins and weak revenue growth. They also point to increased competition from United's expansion and American's strong exposure to regions in crisis, such as Latin America.
"They are more exposed to weaker markets and less exposed to stronger markets," said Joe DeNardi, a Stifel analyst.
Parker said Americans should earn an average of $ 5 billion in pre-tax income every year. As of September 30, he had earned about $ 1.5 billion before taxes in 2018.
A difficult summer season did not help. In a record summer for air travel to the United States, US departure rates declined and cancellation rates increased from July, according to government data.
American's missteps make it difficult to convince business customers to be more reliable and are willing to pay more, said Jamie Baker, an analyst at JPMorgan Chase & Co. Delta and United both said they their income partly thanks to the highest paid business travelers.
US profit margins have often been slimmer than those of its major US competitors in recent years. In the third quarter, American said its pre-tax margin was 3.9%, down from 9.7% in the same period last year.
In recent years, American has borrowed to finance the redesign of its fleet of aircraft. At June 30, American's total debt was $ 24 billion, more than 3.5 times earnings before interest, taxes, depreciation and amortization in 2017. In contrast, Delta's total debt, which at $ 9.3 billion as at September 30, was about 1.1 times that of earnings.
While US debt has deterred many investors, the company's big spending on new aircraft is largely behind it, while other companies are replacing their fleet, said Helene Becker, an analyst at Cowen & Co.
Some investors think that the sharp drop in US stocks has been an overreaction.
"We see this as a fantastic opportunity," said Patrick Kaser, portfolio manager at Brandywine Global, who recently bought US stocks. "We are big holders and we added to the position."
American earned $ 341 million, or 74 cents per share, down from $ 661 million or $ 1.36 in the same period last year. Revenues rose 5% to a record $ 11.6 billion.
Write to Andrew Tangel at [email protected] and Alison Sider at [email protected]
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