Shares of American Airlines (AAL - Free Report) declined 5.67% on Sep 13 from Sep 12’s closing price. The share price depreciation resulted in the AAL stock ending the trading session at $13.31. The downside was due to the unfavorable guidance provided by AAL for the third quarter of 2023, owing to high fuel and labor expenses.
For third-quarter 2023, American Airlines now anticipates average fuel cost per gallon in the band of $2.90-$3.00 (prior view: $2.55-$2.65). With fuel expenses being a significant input cost for the aviation space, the uptick in oil prices does not bode well for airlines.
Apart from rising fuel expenses, AAL is also burdened with the retroactive pay expense of almost $230 million. This retroactive pay expense is a result of the ratification of the new labor deal (for wage increase) with the pilots represented by the Allied Pilots Association, which is to be recognized in the third quarter of 2023. Notably, this retroactive pay expense is expected to weigh on third-quarter adjusted operating margin by almost 1.7 points and adjusted earnings per diluted share by $0.23.
Adjusted operating margin is now anticipated in the range of 4%-5% (prior view: 8-10%). AAL now anticipates third-quarter 2023 earnings in the range of $0.20-$0.30 per share (prior view: $0.85-$0.95).The Zacks Consensus Estimate for the same is currently pegged at 75 cents per share.
Third-quarter consolidated operating costs per available seat mile (CASM: excluding fuel and net special items) are now anticipated to be at the better end of AAL’s prior guidance range unveiled on Aug 22, 2023. The metric is now expected to be up 4-5% (prior view: 4-6%).
Due to its continued solid operating performance, AAL now anticipates its third-quarter capacity or available seat miles to grow 6%-7% (prior view: 5-7%). Total revenues for the third quarter are anticipated to be almost flat compared with prior expectations.
AAL now expects total revenue per available seat miles (a measure of unit revenue) to decline between 5.5% and 6.5% from third-quarter 2022 actuals (earlier estimate was a 4.5-6.5% decline). AAL currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Airlines is not the only airline to raise third-quarter 2023 guidance for fuel prices. United Airlines (UAL), Southwest Airlines (LUV - Free Report) and Alaska Air Group (ALK - Free Report) have increased their fuel cost per gallon projections for the third quarter of 2023. United Airlines now expects the fuel cost per gallon in the $2.95-$3.05 band (the earlier guidance was in the $2.5-$2.8 range).
Southwest Airlines now expects the fuel cost per gallon in the $2.7-$2.8 band (the earlier guidance was in the $2.55-$2.65 range). Operating revenue per available seat mile for the third quarter of 2023 is now expected to decline in the 5-7% band from third-quarter 2022 actuals (the earlier projection was for a 3-7% decline).
Alaska Air now expects the fuel cost per gallon in the $3.15-$3.25 band (the earlier guidance was in the $2.7-$2.8 range). Due to high fuel costs, the third-quarter adjusted pre-tax margin is now expected in the 10-12% range (earlier guidance was 14-16%). Total revenues are now expected to increase in the 1-2% range from third-quarter 2022 actuals (the earlier projection was for a 0-3% increase).
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Shares of American Airlines (AAL - Free Report) declined 5.67% on Sep 13 from Sep 12’s closing price. The share price depreciation resulted in the AAL stock ending the trading session at $13.31. The downside was due to the unfavorable guidance provided by AAL for the third quarter of 2023, owing to high fuel and labor expenses.
For third-quarter 2023, American Airlines now anticipates average fuel cost per gallon in the band of $2.90-$3.00 (prior view: $2.55-$2.65). With fuel expenses being a significant input cost for the aviation space, the uptick in oil prices does not bode well for airlines.
Apart from rising fuel expenses, AAL is also burdened with the retroactive pay expense of almost $230 million. This retroactive pay expense is a result of the ratification of the new labor deal (for wage increase) with the pilots represented by the Allied Pilots Association, which is to be recognized in the third quarter of 2023. Notably, this retroactive pay expense is expected to weigh on third-quarter adjusted operating margin by almost 1.7 points and adjusted earnings per diluted share by $0.23.
Adjusted operating margin is now anticipated in the range of 4%-5% (prior view: 8-10%). AAL now anticipates third-quarter 2023 earnings in the range of $0.20-$0.30 per share (prior view: $0.85-$0.95).The Zacks Consensus Estimate for the same is currently pegged at 75 cents per share.
Third-quarter consolidated operating costs per available seat mile (CASM: excluding fuel and net special items) are now anticipated to be at the better end of AAL’s prior guidance range unveiled on Aug 22, 2023. The metric is now expected to be up 4-5% (prior view: 4-6%).
Due to its continued solid operating performance, AAL now anticipates its third-quarter capacity or available seat miles to grow 6%-7% (prior view: 5-7%). Total revenues for the third quarter are anticipated to be almost flat compared with prior expectations.
AAL now expects total revenue per available seat miles (a measure of unit revenue) to decline between 5.5% and 6.5% from third-quarter 2022 actuals (earlier estimate was a 4.5-6.5% decline). AAL currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Airlines is not the only airline to raise third-quarter 2023 guidance for fuel prices. United Airlines (UAL), Southwest Airlines (LUV - Free Report) and Alaska Air Group (ALK - Free Report) have increased their fuel cost per gallon projections for the third quarter of 2023. United Airlines now expects the fuel cost per gallon in the $2.95-$3.05 band (the earlier guidance was in the $2.5-$2.8 range).
Southwest Airlines now expects the fuel cost per gallon in the $2.7-$2.8 band (the earlier guidance was in the $2.55-$2.65 range). Operating revenue per available seat mile for the third quarter of 2023 is now expected to decline in the 5-7% band from third-quarter 2022 actuals (the earlier projection was for a 3-7% decline).
Alaska Air now expects the fuel cost per gallon in the $3.15-$3.25 band (the earlier guidance was in the $2.7-$2.8 range). Due to high fuel costs, the third-quarter adjusted pre-tax margin is now expected in the 10-12% range (earlier guidance was 14-16%). Total revenues are now expected to increase in the 1-2% range from third-quarter 2022 actuals (the earlier projection was for a 0-3% increase).
4 Oil Stocks with Massive Upsides
Global demand for oil is through the roof... and oil producers are struggling to keep up. So even though oil prices are well off their recent highs, you can expect big profits from the companies that supply the world with "black gold."
Zacks Investment Research has just released an urgent special report to help you bank on this trend.
In Oil Market on Fire, you'll discover 4 unexpected oil and gas stocks positioned for big gains in the coming weeks and months. You don't want to miss these recommendations.
Download your free report now to see them.
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