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Why Is American Airlines (AAL) Up 15.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for American Airlines (AAL - Free Report) . Shares have added about 15.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American Airlines due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

American Airlines Incurs Loss in Q4

American Airlines incurred a loss (excluding 5 cents from non-recurring items) of $3.86 per share, comparing favorably with the Zacks Consensus Estimate of a loss of $3.92. However, the company delivered earnings per share of $1.15 in the year-ago quarter. Operating revenues of $4,027 million slumped 64.4% year over year but surpassed the Zacks Consensus Estimate of $3,859.2 million.

Passenger revenues, which accounted for bulk of the top line (79.2%), plunged 69.2% to $3,190 million. Cargo revenues surged 32% to $285 million, driven by the focus of the carrier on its cargo unit in the face of dwindling passenger revenues. Cargo yield per ton mile surged 82.2% in the final quarter of 2020. Other revenues dropped 26.5%.

Total revenue per available seat mile (TRASM: a key measure of unit revenues) decreased 24.7% year over year to 12.12 cents in the reported quarter on a consolidated basis. Further, passenger revenue per available seat miles (PRASM) fell 34.8% to 9.60 cents in the period. Moreover, consolidated yield was down 14.7%.

While consolidated traffic (measured in revenue passenger miles) plummeted 63.8%, capacity (measured in average seat miles) contracted 52.7%. Consolidated load factor (percentage of seats filled by passengers) decreased 19.7 percentage points to 64.1% as traffic decline was more than capacity reduction.

Total operating costs (on a reported basis) declined 38.2% year over year to $6,542 million with expenses pertaining to aircraft fuel and related taxes tumbling 71.6%. However, consolidated operating costs per available seat mile (CASM: excluding fuel and special items) shot up 51.8% to 17.59 cents due to weak capacity. With major part of the fleet remaining grounded/under-utilized, fuel gallons consumed tanked 50.6%. Average fuel price per gallon (including related taxes) also declined 38.2% to $1.27.

Other Details

Driven by its cost-control initiatives, American Airlines succeeded in reducing its daily cash burn rate from nearly $100 million in April 2020 to approximately $30 million in the December quarter. Also, it exited the fourth quarter with available liquidity of $14.3 billion. The carrier expects to end the first quarter of 2020 with total available liquidity of roughly $15 billion.

Moreover, American Airlines expects system capacity for the March quarter to nosedive 45% compared to first-quarter 2019. Total revenues in the first quarter of 2020 are anticipated to decline in the 60-65% range.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.93% due to these changes.

VGM Scores

Currently, American Airlines has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Airlines has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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